Update Your Estate Plan to Prepare for Upcoming Changes

Now that vaccinations are becoming readily available to anyone that wants to get one, many people are taking care of responsibilities they have been putting on the back burner. This certainly applies to estate planning in general and plan reviews in particular.

This is an ongoing process, and adjustments will be necessary when circumstances in your life change over the years. Now is the time to bring your plan up-to-date if you know that you need to make adjustments and you have been waiting out the pandemic.

In addition, there are possible legislative changes on the horizon that could have serious estate planning consequences. This is another reason to discuss your existing plan with an attorney sooner rather than later.

Capital Gains Tax

Long-term capital gains are generally realized at least a year after the original acquisition of the assets. Currently, the maximum long-term capital gains rate is 20 percent. This is the rate for filers that claim $441,451 or more.

This is far less than the highest marginal income tax rate so some people have always believed the rate should match the top income tax rate. Right now, President Biden and a number of Democrats in Congress are pushing for an increase in the rate to 39.6 percent for some taxpayers.

The reform would also include an elimination of the step-up in basis at death. As the laws stand today, if you inherit appreciated assets, you would not be required to pay capital gains taxes on the appreciation that accumulated during the life of the person who left you the inheritance.

If you think about the implications for someone like the founder of a successful business or the owner of valuable land, you can see that a great deal of wealth can be transferred tax-free. Biden and the others have proposed an elimination of the stepped-up basis with a $1 million exemption.

If you come to our office for an estate plan review, we can gain an understanding of your financial situation and your current plan and recommend the appropriate course of action.

Estate and Gift Taxes

The federal estate tax exclusion is the amount that can be transferred before the tax would potentially be levied on the remainder. It was $5.49 million in 2017; but at the end of that year, the Tax Cuts and Jobs Act was enacted.

This measure essentially doubled the exclusion for 2018. It went up to $11.18 million, and there have been inflation adjustments since that time. In 2021, the exclusion is $11.7 million.

Another piece of legislation called the For the 99.5% Act was introduced by Senator Bernie Sanders in March. It would reduce the estate tax exclusion to $3.5 million, and it would raise the maximum rate from 40 percent to 45 percent.

We have a gift tax that is unified with the estate tax to stop people from giving large gifts to completely avoid transfer taxes. As a result, the $11.7 million exclusion that we have this year applies to lifetime gifts and your estate.

So you could use all $11.7 million giving lifetime gifts tax-free if you choose to do so. The Sanders bill would limit lifetime tax-free gift giving to just $1 million.

Even if this piece of legislation is not passed, the provision contained within the Tax Cuts and Jobs Act that set the exclusion is going to expire at the end of 2025. If there are no changes, the exclusion will go down to $5.49 million at that time.

Once again, if these proposed changes would apply to your estate, you should work with us to implement an estate tax savings strategy.

SECURE Act 2.0

The Securing a Strong Retirement Act of 2021 is moving through the legislative path without much resistance. This is a follow-up piece of legislation that builds on the SECURE Act that was passed at the end of 2019 so it is referred to as SECURE Act 2.0.

This measure would change some of the individual retirement account parameters. We have shared information about it previously on this blog, and we can explain the implications that may apply to you when you consult with one of our attorneys.

Take Action Today!

We are here to help if you are ready to address your plan in light of these coming changes. You can schedule a consultation at our Charlotte, North Carolina or Huntersville, North Carolina estate planning office if you call us at 704-944-3245.

The number in Ashland, Kentucky is 606-324-5516, and the number in Florence, Kentucky is 859-372-6655.  You can also use our contact form to send a message to either location.