Estate Taxes: The Sleeping Giant of 2012


The great recession has caused a lot of people in this country a lot of pain and stress.  People worry about their jobs, their retirement plan and their overall quality of life.  One thing that the majority of the general population has not had to worry about is estate taxes.  However, estate taxes may well be added to the list of stressors which our friends, family and clients may have to deal with.  Circle December 31, 2012 on your calendar, because that will be the drop dead date when we will know just what kind of estate taxes the country will be dealing with in the future.

For the uninitiated, estate taxes are a tax that the government places on your assets when you pass away.  Historically, the estate tax rate hovers around 50% which is especially hard to swallow when you consider that the assets you’ve accumulated have already been taxed once.  The saving grace of the estate tax regime is that the government allows each person an estate tax exemption.  This exemption allows each person to pass a certain amount down to their loved ones without being subject to this tax.  At the end of 2012, the current exemption is set to be reduced by 80%, barring any legislative action from Congress.

A quick history lesson for context.  In the 1990’s, the estate tax exemption was roughly $600,000 per person.  This number slowly rose to $1,000,000 per person in 2001, at which time George Bush initiated sweeping tax cuts across the board.  Over the past decade, the estate tax exemption rose steadily from $1,000,000 in 2001 to $3,500,000 in 2009.  Due to Congressional inaction, the estate tax actually lapsed in 2010, allowing mega-wealthy decedents like George Steinbrenner to pass billions down to their beneficiaries without paying the going estate tax rate of 45%.  Eventually, Congress passed a two year extension of the Bush Era Tax Cuts.  This extension reinstituted an estate tax exemption of $5,000,000 per person.  Because of the Bush Era Tax Cuts, the estate tax now affects less than half a percent of the U.S. population.  But all of this is about to change.

The Bush Era Tax Cuts are set to expire at the end of 2012.  If Congress does not extend them or pass another law governing estate taxes, the $5,000,000 exemption we all currently enjoy will drop back down to $1,000,000.  This means that many more people will be subject to estate tax liability when they pass away.  The estate tax becomes a tax not only on the very rich, but on the upper middle class as well.  The moral of the story here is “Pay more attention, pay less taxes.”  We don’t know what Congress is going to do in this coming year but there is a significant chance that they will do what they do best: nothing.  It pays to meet with your estate planning attorney, accountant or financial advisor to review your situation and to come up with a game plan.  There are many things they can do to reduce your estate tax liability but it requires time and planning.  Having a game plan in place will help you to be prepared no matter what curveballs Congress throws at you.

Brian Y. Chou is an associate at the Law Firm of Barth Calderon, LLP in Southern California.  He specializes in estate planning, asset protection, and estate administration.


About brianychou

Brian Y. Chou is an Associate Attorney at the firm of Barth Calderon LLP and his practice focuses on asset protection, estate planning, and business succession planning. Mr. Chou assists clients in all stages of life, from the young professional couple that is concerned about estate planning for their minor children, to the wealthy real estate investor who wants to insulate himself and his properties from lawsuits, to the successful business owner who is agonizing about how to transition his company to the next generation. Mr. Chou understands that coming to grips with an impending lawsuit and confronting one’s mortality are typically not high on most clients’ list of things to do and his goal is to make the planning as accessible, digestible and (dare we say it?) enjoyable as possible. Mr. Chou seeks to build lifelong relationships with his clients to ensure that as their personal lives and legal situations evolve, their planning continues to accurately reflect their wishes. In addition to working with clients to protect and transition their assets, Mr. Chou actively seeks to be a resource to his clients in all aspects of their lives. He encourages his clients to contact him with all manner of needs, whether it be a plumber to fix a clogged drain, or a qualified accountant to contest an aggressive property tax reassessment or anything in between. An avid public speaker, Mr. Chou has presented to numerous groups all over Southern California, including University of California Irvine, Cal State Long Beach, the Planned Giving Roundtable of Orange County, and the California Society of Tax Consultants. He is also especially proud of passing the California State Bar Certified Specialists Exam for Estate Planning, Trust & Probate Law. Mr. Chou has also obtained his Series 7 & Series 63 Securities licenses and is also a licensed life & health insurance agent. For Mr. Chou, establishing a connection with the community is paramount. To this end, he is active in a number of organizations, including the Estate Planning & Trust Council of Long Beach, Provisors, Business Networking International, and Comprehensive Child Development, a non-profit providing early childhood educational programs for low income families in Long Beach. Brian Y. Chou is a native of New Jersey and the son of Chinese immigrants. After high school, he moved out to the west coast to attend the University of California, Los Angeles, where he received a degree in economics. Upon the completion of his degree, Brian earned a JD/MBA degree from Pepperdine University. During his time at Pepperdine, he participated in a number of activities. Notably, Brian was a literary citations editor for the Dispute Resolution Law Journal, the President of the Asian Pacific American Law Student Association, the Vice Magister of Phi Delta Phi Honors Fraternity, and a member of the Moot Court Board. He also worked in the Career Development Office at the Pepperdine School of Law and remains involved with the community there. Before establishing his estate planning practice, Brian worked for a law firm in the Inland Empire specializing in insurance defense and construction defect litigation. Prior to that, he clerked at law firms in West Los Angeles where he participated in the practice of Workers Compensation litigation and general corporate law. He is committed to using his broad range of experiences to build relationships and effectively represent his clients in a way that is thoughtful and pleasant for all parties involved. In addition to his professional achievements, Brian can speak Mandarin Chinese and can understand Cantonese. His interests include: surfing, basketball, tennis, jogging, drawing and cooking.
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