Now is the Time to Do Estate Tax Planning!
If you have more than $3.5M in assets (anywhere in the world),
plan now or regret it later.
In the first few months of President Biden’s administration, the focus has been on COVID-19 relief, voting rights, and infrastructure. But President Biden also campaigned on changes to the tax system, and you can be sure that, sooner or later, the administration is going to try to implement those changes.
It is said (and it is on my signature block as a reminder) that nothing is certain in life except for death and taxes. And while you cannot prevent either one, you can certainly plan for both of them. Here are some estate tax planning strategies that should minimize the pain of any upcoming changes to the federal Tax Code.
The new administration’s plan has proposed changes to:
Lifetime tax exemptions
Federal law places a limit on the amount a person can give away to friends and family during their lifetimes without having to pay taxes for that amount. Under the Tax Cuts and Jobs Act of 2017, the lifetime estate and gift tax exemption was increased to $11.58M.
President Biden is expected to lower the lifetime exemption amount before the 2017 Act’s expiration date in 2025, with the new limit allegedly around $3.5 million per person.
This means that, if you don’t plan now, you would have to pay a lot more taxes, and pay them a lot more often.
Estate tax rates
Once an individual’s lifetime tax exemption has been met, the rest of the person’s transfers and their estate are assessed and given a certain percentage of tax that must be paid.
The top federal estate tax rate is currently 40%, but President Biden has shown interest in returning the tax rates on high incomes to their past levels, with speculative rates anywhere from 45% to 70%.
One beneficial aspect of tax law is the step-up in basis, which adjusts the value of an asset after it has been passed on. This allows individuals to avoid paying capital gains taxes on certain assets.
This is how it currently works: an individual may pay a base price for an asset, hold that asset while it appreciates, then transfer the asset upon death to the new owner, who would only have to pay taxes on the base price rather than the appreciated market value.
However, if the new administration eliminates the step-up in basis for inherited assets, this will subject the person who inherited that asset to the current long-term capital gains tax rate of 20%.
Get started with a Family Wealth Strategy Session
Our experienced South Florida Lawyers can help you determine the best way to hold and pass on your assets, all while protecting you and your family for years to come.
Call/Text us at 305-707-7126 of fill out the form below.
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