High Estate Tax Exclusion May Be Taken Away
The estate tax exclusion refers to the amount of money you can give without paying estate taxes. Under these federally-established rules, you can distribute this set amount either during your life or at your death. Once that amount is reached, however, additional assets will be taxed at a rate of 40%.
It's important to know that this number has fluctuated quite a bit over the years. In 2001, the exclusion was only $675,000. By 2021, it had reached $11.7 million per person due to a bevy of new regulations. It started at a $5 million adjusted for inflation fixed rate in 2011. Then it was set to double by 2025 because of the 2017 law. Now, unless Congress acts to extend that doubling, the rate will return back to $5 million adjusted for inflation limit starting in 2026.
Like many tax laws, it’s pretty confusing. Since these changes could have big impacts, we think it’s important to stay informed.
The Federal government has played around with the estate tax a number of times over the past few decades. Biden's proposal to potentially reduce the exclusion down to $3.5 million is nothing particularly new if you followed his presidential campaign. Of course, any such proposal would still need to pass through Congress.
Regardless of their majorities in Congress, Democrats will still have multiple hurdles to overcome to secure the 60 votes necessary to change the exclusion rate. Still, with deficits increasing, Congress may attempt to raise revenue from a variety of new sources, and the estate tax exclusion might look like a good option. But why wait to see what decision they make? Instead, you can start taking advantage of the extraordinarily high rates right now.
For instance, if you are married, you could start moving assets into a trust for either your spouse or your descendants. By naming your spouse as trustee, he or she would have the ability to support themselves using those assets. Even if you’re unmarried, you can still set up a trust for your children, nieces, nephews, and other descendants.
There's no doubt that the election and subsequent events have drastically changed the political landscape. Consider whether or not taking advantage of these unprecedented estate tax exclusion rates is right for you and your money. Schedule a FREE 15-minute consultation to learn more about how you could take advantage of this high estate tax exclusion rate.