Is Your Estate Plan Optimized for the New Estate Tax Exemption?

Floridians with large estates have reason to celebrate the second year in a row in which the Internal Revenue Service (IRS) has increased the estate tax exemption, but they must also be prepared to act quickly to take advantage of the move. The higher exemption amount, which was included as a provision of the Tax Cuts and Jobs Act of 2017 (TCJA), enables you to shield your assets from estate taxes at death. However, the IRS set an expiration date for the beneficial treatment, at which point your estate could be taxed at a higher rate.

If you haven’t yet created an estate plan to account for tax issues, the time is now to get on board. Of course, for those who already have a plan in place, the estate tax exemption is exactly why you should revisit your arrangement periodically. Talk to your Florida estate planning attorney about strategies, but some background information may be helpful.

Overview of the IRS Tax Exemption: When the passage of TCJA was passed in 2017, it included a provision that more than doubles the estate tax exemption. For 2020, the amount is $11.58 for individuals and $23.16 for married couples; the amounts for future years will be set according to inflation. As a result, taxpayers can protect a much higher portion of their estate from taxes as compared to the pre-2018 level, which was $5 million.

The caveat is that the higher estate tax exemption amount will expire in 2025, at which point it could go back to the $5 million level. In addition, the provision may expire even sooner if lawmakers take action to terminate it before the sunset date.

Tips to Take Advantage of the Estate Tax Exemption: Because there’s a time limit on the preferential tax treatment, time is of the essence to create or adjust your estate plan to optimize the law. Some recommendations include:

Talk to your estate planning attorney about how to structure an advantageous arrangement at death, but also discuss gift tax planning. Individuals and couples get an exemption when giving gifts to others, thereby reducing the value of the estate.
If you’re a business owner, understand that some strategies for taking advantage of the estate tax exemption may involve giving up some control. You can balance this interest by creating both voting and non-voting shares in your company – keeping your vote while gifting ownership to family members who don’t have the right. The advantage is that your gift could increase significantly over time. The $50,000 you gave to a family member could be worth much more in 10 years, but the increase in value won’t be in YOUR estate.

Consult with a Florida Estate Planning Lawyer About Tax Issues

For more information on estate tax matters and planning around tax laws, please contact a Dade City estate planning lawyer at The Law Office of Laurie R. Chane at 352-567-0055 or via our website. We’re happy to schedule a consultation to learn more about your needs and estate planning objectives, including how to take advantage of exemption rules.

Resource:

irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

https://www.chanelaw.com/pour-over-wills-living-trusts-in-florida-estate-planning/