The SECURE Act already made some serious changes that limit the amount of tax deferral you can achieve for loved ones relative to your retirement accounts.
Another big area of concern is that the step up in basis may be lost. There is talk that the new rule could direct that capital gains taxes would be due if you make a gift or leave assets at death.
So, we are in for some changes. The estate tax exemption is set to return to $5.49 million, adjusted for inflation, on Dec. 31, 2025.
Taking action before the end of 2021, for wealthier families and larger estates, may be wise to take advantage of those favorable rules which are currently in effect, and are in jeopardy of being changed.
Tax-wise, gifting into trusts might be wise for some families. Donors may consider lifetime gifts this year totaling up to $11.7 million ($23.4 million for a married couple) for federal tax purposes.
Such grantors/donors will not be faced with the IRS undoing the excluded gifts in the event that they die on or after Jan. 1, 2022.
In any event, the basic objectives most people have of, 1. avoiding unnecessary Court involvement in probate; 2. making sure loved ones inherit property in such a way (“in trust”) so it is protected from lawsuits (and divorce); 3. making sure what loved ones inherit is not subject to the estate tax in their estate; and 4. your assets will be guaranteed to stay in the family-to your grandchildren, remain quite important.
Updating or getting your legal papers in place is critical to do if you want to accomplish any of the above.
When people learn that they can leave their assets through a trust (so it avoids probate) and “in trust” so it is protected form lawsuits and will stay in the family free of the federal estate tax, they usually light up. “That is exactly what we want!” is commonly heard.
So, in this regard, the good news is it is not difficult to do. When things are not planned for in advance, it can be quite a mess for loved ones to have to resolve. It can be costly with lots of delay.
However, when you plan ahead with trusts, and properly titled and designated assets so it all works together, then the administration can be easy and trouble free. Your loved ones will be grateful.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com