LIMRA: More Than One in Eight U.S. Households Will Be Affected If Congress Fails to Act on Estate Tax Law

WINDSOR, Conn., Sept. 25, 2012 - Almost 15 million U.S. households (12.5 percent) would have a potential tax liability if Congress fails to act and the estate tax law reverts back to $1 million and 55 percent maximum tax.

"The uncertainty that has surrounded our estate tax laws has made it impossible for Americans to plan for a reasonable transition of their assets to the ones they love and to charity for the greater good," said Robert Kerzner, president and CEO of LIMRA, LOMA and LL Global. "Today, there are three likely possibilities that Congress could adopt — if they address this issue before the end of the year — which would impact many American families and businesses."

LIMRA analyzed 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, a much larger portion of the American population could be affected.

The three 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. 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 two 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 three 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, these households would still owe $3 million.

"Life insurance can play a vital role in estate tax planning and preserving Americans’ assets," noted Kerzner. "Until we have long-term clarity on what the law will be, American families and small businesses will be challenged to make the prudent decisions to ensure their beneficiaries are protected."

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LIMRA Contacts:

Catherine Theroux, 860-285-7787, ctheroux@limra.com

About LIMRA

LIMRA, a worldwide research, consulting and professional development organization, is the trusted source of industry knowledge, helping more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com.