Filed Under:Life Insurance, Life Planning Strategies

LIMRA: More than 1 in 8 U.S. households may owe estate tax in 2013

Photo credit: Renjith Krishnan
Photo credit: Renjith Krishnan

Should the current estate tax law expire at year-end without Congressional action, nearly 15 million U.S. households will have a potential estate tax liability, according to new research.

LIMRA disclosed this finding in a summary of results from a new report that analyzes data from the Federal Reserve Board’s Survey of Consumer Finances to identify vulnerable U.S. households if the current estate tax law expires. According to LIMRA’s analysis, only 4.4 percent of households have financial assets greater than $1 million. 

However, other assets are included in estate tax calculations, including real estate (primary residence and other properties), privately held business interests and the face amount of life insurance. Therefore, LIMRA concludes, a much larger portion of the American population could be affected.

The LIMRA research indicates that about 12.5 percent of U.S. households would have a potential estate tax liability if the estate tax law were to revert to the pre-2001 estate tax regime. Those with estates exceeding the $1 million per individual estate tax exemption would potentially be exposed to a maximum 55 percent estate tax rate.

The LIMRA research indicates that proposals Congress is most likely to consider are:

  • Let the estate tax law revert back to $1 million and 55 percent maximum tax
  • Extend the current law with $5 million exemption and 35 percent maximum tax
  • Enact a compromise of $3.5 million exemption and 45 percent maximum tax.

If Congress fails to act, 14.7 million U.S. households would have a potential estate tax liability. The average tax due for these families would be $1.4 million, LIMRA states.

While households can use life insurance proceeds on the deceased to pay the estate tax, LIMRA analysis indicates that 55 percent of these households do not have enough coverage to pay the tax. On average, these households would still owe $1.6 million.

If Congress extends the existing law, 2.4 million households (slightly higher than 2 percent) would have a potential estate tax liability. At a 35 percent tax rate, the average tax would be $2.4 million.  

LIMRA’s analysis shows that 43 percent of these households do not have enough coverage to pay the tax. These households would still owe, on average, $3.1 million. 

If Congress agrees to the compromise of $3.5 million exemption and 45 percent tax rate, 3.6 million households (slightly higher than 3 percent) would have a potential estate tax liability. The average tax owed for these families would be $2.6 million.  

According to LIMRA’s analysis, 53 percent of these households do not have enough coverage to pay the tax. On average, LIMRA calculates that these households would still owe $1.6 million. On average, these households would still owe $3 million.

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