Wealth and Tax Planning: The (multi) million-dollar question is use it or lose it?

Category: Estate Planning

When it comes to tax planning in 2021…the message might just be: Use it NOW, Before it’s Too Late

If you have assets that total $3,500,000 or more, you should seriously explore whether you need to do some estate tax planning before the end of the year. Failure to do so could result in a large tax due on your estate when you die! Why act now? Current exclusions for both estate and gift taxes are set at a generous $11,700,000 for 2021, which is a record high. But that is set to decrease dramatically. Senators Bernie Sanders (I-VT) and Sheldon Whitehouse (D-RI) introduced the “For the 99.5% Act” to the Senate, which would reduce the exemption effective January 1, 2022. For transfers at the time of death, the exemption would decrease to $3.5 million and wouldn’t be adjusted for inflation. Only $1 million of the exemption would be able to be used while you’re living. Under the legislation, transfers above the exemption would incur a tax at rates beginning at 45% and going to as much as 65%, for those with over $1 billion.

To break it down, this means that you currently have a unique opportunity to transfer up to $11,700,000 ($23,400,000 for a married couple) of assets to a trust that will not be subject to gift tax while you are alive or estate taxes when you die. By contrast, next year that number could drop as low as $1,000,000 ($2,000,000) for a married couple. This could result in a savings of over $4,000,000 ($8,000,000 for a married couple) in estate taxes!

For this reason, strategic gifting plans during the remainder of 2021 are the best way to benefit from current exemption rates and still keep as many of your assets in your control as possible. These plans may include placing assets in an irrevocable trust for your spouse or children, such as a Spousal Lifetime Access Trust (SLAT), or an Intentionally Defective Grantor Trust (IDGT).

With trusts of this type, assets are held outside of the individual’s estate so they are exempt from estate taxes, but still controlled by that individual or his/her spouse following the parameters set up in the trust. Under current law, as long as the funds are transferred to such a trust before legislation changes the exclusion amounts, there should be no estate taxes due on such funds upon death of the individual.

This article is not meant to be financial or legal advice. The very best thing to do right now, is to consult with financial and legal professionals. You can gain peace of mind knowing that you are handling your finances in the most advantageous way possible. The estate planning attorneys at Davis Miles McGuire Gardner are here to help. With a broad range of experience helping individuals and business owners with estates from modest to vast and complex, our attorneys can lead you each step of the way. Choose DMMG for personal, tailored-to-your-needs legal help. But don’t wait long! Many individuals are taking advantage of this unique opportunity and it may be difficult to get it done before year end if you wait too long!