Where And how do We Go From Here in Estate Planning?

Many people are wondering what the changes mean for their estate plans now that the new government has been in place for almost six months and the party in control in the Senate and the Executive branch has shifted. Several tax suggestions have been released in recent months, leaving many people wondering if they should take precautionary steps with their estate planning.

What Is the Current State of Estate Planning?

The following are the features of the present estate tax rules, which are slated to expire at the end of 2025:

• Without incurring gift or estate taxes, a person can transmit $11,700,000 at death or by gifts throughout their lifetime in 2021.
• The lifetime estate and gift tax exemptions will reset to $5,490,000 adjusted for inflation, or nearly $6,000,000 per individual if nothing changes before 2026.
• If you're married and one of your spouses passes away, the surviving spouse can make a request with the IRS to have the dead spouse's unused estate tax exemptions added to the surviving spouse's unused lifetime estate and gift tax exemptions (referred to as portability).
• The annual rise in the lifetime estate and gift tax exemptions is based on the Consumer Price Index.
  
  

Who Is Affected by This?Estates of married couples with a net worth of more than $12,000,000 or individuals with a net worth of more than $6,000,000 may be subject to an estate tax beginning January 1, 2026. If they utilized part of their lifetime estate and gift tax exemptions earlier, their new estate tax exemption will be lowered by that amount. Gifts made before January 1, 2026, at the higher estate tax exemption levels will not be taxed retroactively when the exemption levels expire at the end of 2025, according to the IRS.

What Are Your Alternatives?

If you are one of the people who has been affected – or may be affected – it is critical that you engage in careful, thorough financial and estate planning. This proactive preparation helps you to make prudent and educated estate planning decisions regardless of existing or future estate tax regulations. We believe that regular evaluations of financial and estate plans are necessary to identify whether any steps are required to reduce estate tax consequences under existing tax legislation.

When you keep under the IRS's yearly gifting restrictions, making annual donations to family members is a simple yet efficient method to pass assets along. High-net-worth individuals can pay for someone else's schooling and medical expenditures directly without it going against their annual donation limitations. When your family considers giving, it's crucial to consult with your financial adviser to ensure that your lifestyle isn't jeopardized.

When a spouse dies, the monetary amount of their assets that can transfer to the surviving spouse is infinite. As previously stated, portability allows the surviving spouse to keep any of the dead spouse's unused giving or estate tax deductions at today's levels if he or she dies before 2026. Within nine months of the dead spouse's death, the surviving spouse must submit with the IRS for portability of the deceased spouse's lifetime estate and gift tax exemption. Unlike income tax, inheritance tax may be totally avoided with the appropriate preparation and information.

What Are the Proposed Changes That Might Affect Estate Planning?

• Limiting the lifetime gifting exemption to $1,000,000, lowering the amount of money you may pass on before incurring a gift tax.
• Stepped-Up Basis is lost when assets are transferred upon death or into an irrevocable trust.
• The estate, lifetime gifting, and generation-skipping tax exemptions have all been reduced to $3.5 million.
• For sums exceeding the Estate Tax Exemption, higher estate tax rates apply.
• Grantor Retained Annuity Trusts are subject to stricter restrictions and higher taxes.
• Limitations on the quantity and value of gifts that are not allowed each year.

What steps do you need to do right now?