The housing market is thriving all around the country right now, and there has been an extended bull market. In some communities, the prices have gone up by one hundred percent or more over the last 10 years, and this has been driven in large part by supply and demand.
Interest rates have been very low so there are many buyers out there, and the inventory is consistently limited. On the one hand, this is great for homeowners, but there is an estate planning dimension that can enter the picture.
Federal Estate and Gift Tax
We have a federal estate tax in the United States, and it can have a significant impact on your legacy because it carries a 40 percent top rate. Fortunately, there is an exclusion that can be used to transfer a certain amount tax-free, and it is quite high at the present time.
When the Tax Cuts and Jobs Act was enacted at the end of 2017, it doubled the estate tax exclusion for the following year indexed for inflation. The figure was $11.18 million in 2018, and after a series of annual adjustments, it is $11.7 million in 2021.
The estate tax exclusion is portable between married couples. This means that a surviving spouse would be able to use their deceased spouse’s exclusion (if you file an estate tax return when the first spouse dies). Prior to 2011, the exclusion was not portable so this is a relatively new development.
On the subject of spouses and the estate tax, there is an unlimited marital deduction. You can transfer any amount of property to your spouse free of the estate tax as long as your spouse is an American citizen.
You cannot give lifetime gifts to completely avoid the estate tax, because there has been a gift tax in place since 1932. The gift tax and the estate tax are unified under the tax code so the exclusion is a unified exclusion that encompasses lifetime gifts as well as your estate.
In light of the dramatic increase in real estate values in some cities, many people who do not consider themselves to be super wealthy may be exposed the estate tax. This possibility is going to increase significantly if there are changes to the tax code.
Potential Reduction
At the time of this writing, the For the 99.5 Percent Act is on the table in Congress. It takes aim at the wealthiest people in America without considering the individuals that are only “house rich.”
This measure would reduce the federal estate tax exclusion to $3.5 million, and the rate would go up to 45 percent for the first $10 million. It would gradually rises to 65 percent for estates that are valued at over $1 billion.
Another provision contained within this measure would impact the gift tax rules. As things stand today, in addition to the multimillion dollar unified lifetime exclusion, there is an additional annual exclusion.
You can give up to $15,000 to each of an unlimited number of gift recipients in a given year free of transfer taxes. To be clear, there is no limit to the total amount that can be given, as long as you do not give more than $15,000 to any one person.
In addition to direct gift giving, people who have estate tax concerns can use this exclusion to fund certain types of irrevocable trusts and family limited partnerships.
The For the 99.5 Percent Act would place a $15,000 total annual limit on gifts to these entities.
Access Our Special Report!
We encourage you to come back and visit this blog regularly, because we publish new posts all the time, and this is not our only resource. One of our best online tools is the estate planning worksheet that we have prepared to give you a better understanding of the process.
There is no charge for this worksheet, so should definitely take advantage of the opportunity. You can get your copy right now if you head over to our worksheet access page and follow the simple instructions.
Need Help Now?
If you already know that it is time for you to work with an Ashland, Kentucky estate planning lawyer to put a plan in place, our doors are open. You can schedule a consultation appointment if you call us at 606-324-5516. The number for our Florence, Kentucky office is 859-372-6655.
Our location in Charlotte, North Carolina or Huntersville, North Carolina can be reached at 704-944-3245, and you can use our contact form if you would rather send us a message.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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