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Tax Laws – Big Changes That Could Affect YOUR Estate: IF YOU HAVE OVER $5M, PLEASE READ ASAP!

While estate planning attorneys, especially those who do advance tax planning, dream of a having a crystal ball, unfortunately, they don’t exist. By now you’ve probably heard about President Biden’s tax reform bill. His bill proposes to change many different types of taxes. This article only addresses the Federal Estate Tax (FET)*. Please consult your CPA and a tax attorney for more details.

Not only is the amount of FET exemption uncertain at this point, but we also never know what the law will be when we die**. However, many people are rushing to do tax planning in anticipation of the tax changes that may take effect January 1, 2022.

Currently, the combined lifetime gift and FET exemption is $11.7M per person. This means if you have less than that, there will be no estate tax if you die now. There is also currently no California inheritance tax.

However, the proposed tax reform, if passed, will likely lower this exemption by about 50% starting January 1, 2022. This means there is a use it or lose it option for the exemption we will lose. In other words, you would need to gift over approximately $6.4M to take advantage of the current law. In addition, this must be done before the new law goes into effect. If the Biden tax reform doesn’t pass, the FET will revert to the pre- Trump law in January 2026 (which will be approximately $6.4M).

Tax planning means that you gift money out of your estate – and put it in one of many types of irrevocable trusts – now so that if you die, you’ve reduced or eliminated your tax burden. Many people who have a large estate don’t want to give up control and opt to wait until they’re older to do tax planning. Alternatively, they choose to buy life insurance to pay for the estate taxes. This is a personal decision.

If your estate is over $5.5M (per person), including life insurance and all your assets, please consult your CPA and a tax attorney soon. If you choose to do tax planning, many attorneys will be overwhelmed with client work and may not accept new clients.

As you know, we do not do estate tax planning. If you would like a referral list, please contact us.

* Read this Forbes article for a recent
summary of Federal Estate Tax changes
and planning options.

**Read this The Balance article for an overview
of the Federal Estate Tax from 1997 to today
with a great chart.

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