Estate Planning Tips When You Near the Tax Limits

Estate-Planning-Tips-When-You-Near-the-Tax-Limits

Have you heard the recent buzz in the news about the estate tax? The federal estate tax exemption was raised to its highest ever levels in 2017 by the Tax Cuts and Jobs Act. The exemption currently sits at $11.7 million per individual person or $23.4 million for a married couple. Given these numbers, many may be wondering why there is a need to worry about the estate tax at all. There may be a few reasons why.  The following are some estate planning tips when you are near the estate tax limits.

 

The current limits “sunset,” or expire, at the end of 2025 and are set to adjust down to an inflation-adjusted number that is projected to be in the neighborhood of $6.5 million per person, which would equate to $13 million per married couple under current tax law. Much uncertainty exists, however.  While there are few who expect the limits to increase beyond 2025, many have expressed caution that those limits could be lowered before 2025.  President Biden himself has proposed a plan that would reduce the estate tax exemption to $3.5 million per person, which would represent a drastic drop from today’s limits. If you are concerned that you would be subject to estate tax if the limits decrease, talk to an estate planning attorney about what the “magic number” may be where you would need to pay attention and whether there are tax planning strategies you can use to shift your assets out of your taxable estate. You may want to explore creating an irrevocable trust or making gifts to family and friends given the uncertainty about the future size of the exemption. An estate planning attorney and tax advisor can best guide you here.

 

Another issue may be the state estate tax where you reside. Your state may have an estate tax exemption that is lower than the federal limit. Alternatively, it might not have any estate tax at all. Every state makes its own rules. If you live in a state with a relatively low estate tax exemption, you might want to consider moving elsewhere if there is another desirable area for you to live where your estate would face a lower tax bill, or no bill at all. This is one reason many retirees flock to Florida. In addition to the weather, the lack of state estate tax is a big attraction!

 

The estate tax can be a significant financial burden that can force families to liquidate real estate or businesses just to pay the tax. For estate planning tips to help avoid such tax impacts, please reach out to our office to schedule an appointment.