Planning for Estate Tax Changes

Federal Estate Tax

As of October 2020, if you pass away with an estate worth more than eleven million, five-hundred and eighty thousand dollars ($11,580,000) you will have to pay federal estate tax. But this high number may be cut in half after the 2020 Presidential Election!   If this may impact you, please read on for the details.

Biden Tax Plan Changes

Presidential Candidate Joe Biden has posted some details on his tax plan. The Biden Tax Plan calls for a fifty-percent (50%) reduction in the federal estate tax exemption down to five million dollars ($5,000,000) adjusted for inflation. Many more people will exceed a reduced amount, particularly farmers in states where property values are high.

What Can You Do?

In order to protect your estate from estate taxes, there are several plans and considerations to make.  First, create an estate plan, or if you already have an estate plan, talk to an estate planning attorney to make sure it takes advantage of all available tax protections. Second, if you have been thinking about getting married, get married! Marriage provides you and your spouse with additional estate planning options for tax protection (more on this below).

Types of Protections Available

If you are concerned about the federal estate tax exemption you likely have a living trust as opposed to a simple will. A standard living trust is revocable, which means that you can change or terminate the trust whenever you desire. However, you can create an irrevocable trust to hold assets which will no longer be considered yours once transferred. Irrevocable trusts allow for an additional gift of fifteen thousand dollars ($15,000) a year before having to file a gift tax return. Therefore, the earlier you create an irrevocable trust, the more assets you can protect by annually gifting up to the fifteen thousand dollar ($15,000) exemption amount. The more years you gift, the more you can save your estate.

If you are married, your living trust can divide itself into two or more sub-trusts at the passing of the first spouse. This division is designed to reduce the amount of assets subject to federal estate tax as the deceased spouse’s trust retains ownership of that spouse’s community and separate property interests in the trust assets. If reducing the value of your trust estate still doesn’t protect you from federal estate tax, then you can incorporate a third split to your trust known as a Qualified Terminable Interest Property (QTIP) trust. This trust holds the assets in excess of the exemption amount with a fixed distribution and is exempt from federal estate tax.

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The Biden tax plan, if enacted, will result in estate taxes for people who are currently exempt from those taxes. You can create additional tax protections for yourself and your family by working with a knowledgeable estate planning attorney. Here at Griswold, LaSalle, Cobb, Dowd & Gin, LLP, we offer estate plans with the tax protections described above. We work with you to craft the best estate plan for your current and future circumstances.