Recently, as part of the 2010 tax cut compromise, the President and Congress agreed to put some certainty back into estate planning. As I've addressed in past posts, the federal estate tax exemption increased over the past few years, with a full repeal of the tax in 2010. However, a sunset provision in the tax code meant that the tax was set to return in 2011, with the exemption going back to $1 million. That created some uncertainty for estate planners.
However, the recent compromise brought some certainty back to estate planning. The exemption for the next two years is $5 million at a maximum rate of 35%. However, the compromise also has a sunset provision, which means in two years the exemption will go back to $1 million.
Even if the federal exemption becomes set on a long term basis, that doesn't mean you're in the clear if your estate is approaching $1 million. Many states have their own estate tax and may have their own exemption that does not match the federal exemption. Minnesota's estate tax exemption, for example, has been $1 million for many years and there is no talk of an increase. If your estate is nearing a value of $1 million (and remember that your taxable estate includes most life insurance), speak with an experienced estate planning attorney in your state.