A new year, new leadership, and (potential) new estate tax laws
May 18, 2021
Cades Schutte LLP
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With a new presidential administration at the top of our federal government and a new majority in the US Senate, changes to the federal estate tax laws could be in sight. At the state level, the state estate tax exemption will remain at its current level of $ 5.49 million per person, at least for now.
The tax plan proposed by President Biden includes provisions to expand estate and gift taxes by restoring the tax rate and exemption to 2009 levels – $ 3.5 million for inheritance tax exemption and $ 1 million for exemption lifetime gift tax with an increased maximum tax rate of 45%. And even if such provisions are not passed, the current inheritance tax exemption of $ 11.7 million per person will decrease significantly to $ 5 million, adjusted for inflation, by the end of 2025, unless Congress acts to to make the current exemption permanent. The tax plan proposed by Biden also removes the “increase in base on death” provisions for inherited assets, which means that a beneficiary would either assume the deceased’s cost base in the asset or be taxable on the unrealized increase in value on the deceased’s death could.
At the state level, proposals were tabled earlier this year to reduce the current Hawaii State estate tax exemption to $ 1 million, but ultimately were not adopted. Accordingly, the current level of $ 5.49 million per person will remain in effect until the issue is revisited by Hawaiian law in the future.
While federal uncertainties remain about further changes to the Estate and Gift Tax Act, now is a good time to reassess your estate plan to make sure you have the basics in place. A few points should be noted below:
- Review your beneficiaries’ information on issues such as retirement accounts and life insurance, especially if you’ve had a significant life event (e.g. marriage, divorce, or the birth or adoption of a child). Remember, creating a will or trust does not override beneficiary names for assets such as IRAs, 401Ks, annuities, and pension / profit sharing plans. Checking that your beneficiary’s names are up to date can save your loved ones a lot of headaches later.
- If you have a trust as part of your estate plan, check that the trust is properly funded, e.g. B. with your real estate, brokerage accounts and other assets. Failure to title assets on behalf of your trust can result in an estate on your death and nullify a significant benefit of creating a trust. This can also be a good time to ensure that your trust is made as flexible as possible to accommodate possible future changes in tax law.
- Organize your digital assets. While you don’t have to catalog every file on your computer, make a list of the most important items, such as: B. Cloud or local storage of your digital photos, videos and documents as well as email, social media and financial accounts (including Venmo and PayPal). You also want to ensure that you have incorporated provisions in your trust or give your agent access to such assets. The easiest and most secure way to ensure that your agent, executor, or other trusted person can access your accounts is with a password manager.
- To the extent that you have significant assets (i.e., approaching or exceeding current federal exemptions), you should consider donating or transferring assets. Now is your unique opportunity to shift assets to the next generation by taking advantage of the unprecedented amounts of exemptions currently available.
Originally published May 6, 2021
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.
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