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I’ve had a few questions come up this year about federal estate tax and the current exclusion amounts so I thought it may be helpful to address:

 

  1. What we know about the current laws,

  2. What may happen in the future, and

  3. How to best address the avoidance of estate taxes moving forward. 

 

I think most of us would agree that we want to keep our money in the family (or wherever else we choose for it to go -- rather than have it go towards taxes). Assuming we agree on that premise, let’s talk about where we currently stand in terms of estate taxes as of 2021 and where we may be heading moving forward. 

 

As of 2021 the federal estate tax threshold is close to $11.7 million per person (doubled per couple) so we are currently around an exclusion amount of $23.5 million for any assets that are considered part of our “taxable estate”. Important to note that anything above and beyond that amount is taxed at 40 cents on the dollar. 

 

Right now the exclusion amounts are, compared to a few years ago, extremely generous. I suppose one way to look at it is that if we indeed have a taxable estate that then potentially triggers “estate tax implications”, well, there are definitely worse problems to have in life. That perspective is not lost on me in the least. Having said that, it is still an issue and an issue worth addressing. If that money is earned by us then I recommend we get strategic in keeping those assets in the family rather than face an obscenely high tax rate that we can possibly avoid. 

 

The current threshold amounts are scheduled to sunset on January 1st, 2026, so they are set to end  in a few years assuming everything stays static until then. At that point, they are set to be cut in half and go back to the pre-2018 levels of approximately $6 million per person ($12 million per couple). 

 

Here’s where we have to prognosticate a bit: If sunsetting in 2026 were our only concern, then we would have over four years to prepare for proper asset protection. What is likely to happen, however, is that those numbers will likely change prior to 2026 based on what many are forecasting regarding actions Congress may take. 

 

For example, there have been endorsements to reducing the estate tax exclusion amount back to the 2009 level of approximately $3.5 million per person (and, considering we are at $11.7 million now that would represent a significant cut) while, at the same time, raising the applicable tax rate to somewhere north of the current 40%. It could be 45%, or 50% -- again, we’re prognosticating, but I think we are on fairly firm ground in presuming the tax rate would, at the very least, not be lowered below the current rate. 

 

In the overall scheme of life, again, this is not a tragic problem to have. Nevertheless, it’s still an issue. Our money. Let’s keep what we can legally keep. And, to do this, we need to be strategic in our thinking moving forward. What we want to do is, ultimately, maintain flexibility in our estate planning. We will want to assume that the exclusion amount will, indeed drop…so as we think about our estate planning let’s consider using different trust techniques to ‘peel off’ that maximum exclusion amount when a spouse passes away and, essentially, preserve it for the benefit of the surviving spouse. And, as we make moves to accomplish this we want to avoid triggering any estate tax events.

 

It may seem akin to “chasing ghosts” when trying to guess what Congress may or may not do, but we need to anticipate possible estate tax threshold changes and, again, stay as flexible – and be as strategic – as we can. 

 

Let’s essentially eliminate as many variables as we can. I don’t like variables. Let’s ‘prepare for what we can prepare for’ considering there are so many things in life that we can’t.

 

That’s all I have for you today. 

 

If you found this information helpful and are in a position to “like” this content, comment on it, or share it with others, please do. You have my preemptive appreciation and gratitude. 

 

If you would like to set up a time to discuss any estate planning issues you may have I’d be happy to speak with you.

 

You can reach me either through this platform or by going to EstatePlanInfo.com (an easier domain name to remember since my last name is a bit lengthy…) or straight to my firm’s website at LindamoodLawFirm.com. 

 

I appreciate your time, hope you and your loved ones are safe and healthy, and wish you a wonderful week. 

 

~Jase