The current lifetime estate exemption is $5.12 million (indexed with inflation). This lifetime exemption is scheduled to be reduced to $1 million with a top rate of 55% on January 1, 2013. President Obama has proposed to reduce the exemption to $3.5 million with a top rate of 45%.
Senate Finance Committee Chairman Max Baucus (D-Mont.) split with President Obama on November 30, 2012 by stating that this lifetime exemption and top rate needs to be at least as favorable as the 2012 rates.
Senator Baucus has supported an extension of the current estate tax laws in the past, but this is the first sign that not all Democrats are going along with the President on all aspects of proposed tax law changes.
It is interesting to note that all estate tax law changes (at least since I started as a CPA) have never reduced the lifetime estate tax exemption. If the exemption is reduced to $3.5 million, this would be most likely the first time. If it simply goes back to $1 million, that is not technically a reduction, but simply a sunset of the original law passed back in the early 2000s.
We will keep you posted.