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Potential Changes to Estate Tax Law Thumbnail

Potential Changes to Estate Tax Law

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A Reminder About the Tax Cuts & Job Acts (TCJA) of 2017

The Tax Cuts & Job Acts (TCJA), among other things, greatly increased the amount of money a person or couple could pass down to children or charity free from estate taxes. Prior to the TCJA, this number was $5,490,000 for individuals or $11,980,000 for couples in 2017. Any amount gifted or passed on above this amount would be taxed at a rate of 40 percent. Since the passing of the TCJA, the exemption limit has increased to $11,580,000 per person or $23,160,000 for couples.1

This legislation is meant to remain in effect until January 1, 2026 when it would, presumably, revert back to pre-TCJA exemptions levels (adjusted for inflation). Unless the administration reverses these orders. 

What Could Come of The Current Estate Tax Limits?

If current administration repeals current estate tax to pre-TCJA, this would affect those who may be planning on passing along an estate inheritance greater than $5.49 million (this number is based off of 2017 pre-TCJA numbers, but would be adjusted for inflation). There have also been reports of reducing it even further to $3.5 million per person. 

What Should You Do to Prepare For a Potential Estate Tax Change?

With the new administrations priorities, we could see tax changes - including changes to estate and gift tax exemptions - go into effect shortly.

If you are worried this reduction in the tax exemption limit may affect your future gifting, there are a few things you can do now to alleviate the potential tax consequences. If possible, you could make gifts to your children or charities and use as much of the exemption as you can before any tax changes were to go into effect.

In some cases, gifting or selling portions of your estate to certain types of trusts can help to preserve your estate as you prepare to pass it on to children or grandchildren. 

Common trust types could include:

  • Grantor Retained Annuity Trusts (GRATs)
  • Intentionally Defective Grantor Trusts (IDGTs)
  • Charitable Lead Annuity Trusts (CLATs)
  • Qualified Personal Residence Trusts (QPRTs)

The type of trust you choose to utilize would depend heavily on your unique circumstances. Please consult with your estate planning attorney and financial advisor.

With a new administration in place, don’t hesitate to reach out to Sterneck Capital to determine how your tax obligations may be affected, and what you can do now to prepare.

  1. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
  2. https://taxfoundation.org/joe-biden-tax-plan-2020/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.