Upcoming Changes to Estate and Gift Taxes: What to Know
Potential estate and gift tax changes are on the horizon—are you prepared for what’s next?
Are you prepared for potential shifts in estate and gift tax laws? With discussions heating up around possible tax changes, it’s crucial to stay informed. As the national election approaches, many experts believe we could see significant alterations to estate planning strategies that could impact your financial legacy.
Currently, the exemption amount for estate, gift, and generation-skipping transfer taxes stands at $11,580,000 per person. However, proposals are circulating that could reduce this figure to as low as $3,500,000 per person. This reduction would dramatically affect individuals and couples planning their estates. If the exemption decreases, more estates could fall under taxable thresholds, leading to higher taxes on inherited wealth.
In addition to changing exemption amounts, the estate and gift tax rates currently set at 40% may face increases. Some proposals suggest rates could rise to 50% or more for high-value estates. This means that your heirs may inherit less than you intend, raising the stakes for effective estate planning.
Another critical area of discussion involves the step-up in basis rules. Under present law, assets inherit a new tax basis equal to their fair market value, effectively shielding heirs from capital gains taxes on any appreciation that occurred during the deceased’s lifetime. If these rules are altered, heirs could face significant tax implications on asset sales, losing out on tax benefits that current laws provide.
Lastly, the treatment of grantor trusts is under review. Presently, assets in a properly structured grantor trust are excluded from the grantor’s taxable estate. However, changes could lead to these assets being included in the estate, which might affect many estate plans.
So, what can you do now? Consider acting quickly to take advantage of the current exemption amounts. Making gifts before December 31, 2020, could allow you to utilize the higher exemption levels while they last. Additionally, exploring options like Spousal Lifetime Access Trusts or Charitable Lead Annuity Trusts might be beneficial strategies to consider in light of potential changes. Don’t wait until the last minute—review your estate plan today to ensure it aligns with your goals amid these uncertainties.
