Is it time for you to start worrying about the estate tax? Every four years, my advice to my clients as we approach a presidential election is that we need to keep our eyes and ears open and see what a new administration may do with estate taxes. In normal elections (not ones during a global pandemic), the issue has been discussed by the candidates and we have a good sense of where each person stands on the issue. Once the election results have been decided (remember when that used to happen the night of the election?), we have a couple of months' advance time to plan for the new administration (or keep our current course if the incumbent has won). As 2021 begins to unfold and we are moving forward from pandemic and stimulus bills, the estate tax may be coming around to affect your estate.
How the Estate Tax Applies to You
As it stands today, the federal estate tax won't affect you unless your estate is more than $11.7 million (that's just you alone - if you're married, your combined exemption is over $23 million). And if your estate is even close to that amount, you have hopefully realized the importance of an estate plan to make sure that your assets are distributed as you would like after you die. But for many people who have worked hard and have accumulated a legacy worth preserving, the estate tax may soon become a concern again.
The estate tax can impact you if the government lowers the exemption amount for your estate (currently the $11.7 million figure) or if they choose to raise taxes by implementing taxes on people who inherit assets. For those inheriting assets, the tax will affect them when they go to sell an inherited asset and may face taxes on that sale, for example, capital gains on stocks.
The New Administration
According to the New York Times, the new administration is considering a variety of proposals that could affect your estate, including,
- Eliminating the Step Up Basis at Death
- Reducing the estate tax exemption
These are just two of the issues that President Biden discussed on the campaign trail in 2020. As he works more with Congress, especially with his party controlling both houses, there can be many more changes bandied about.
Your Local Government
In addition to what the federal government is doing, you may also have state estate taxes to worry about as well. These amounts tend to be less than the federal government exemption. You may fit comfortably below the $11.7 million that the federal government sets, but your state government could be much lower (Massachusetts and Oregon are only $1 million, the highest exemption is New York's $5.9 million). So don't ignore the exemption in your state as well when considering if you should create an estate plan.
...
No matter what the new administration and Congress decide to do with the estate tax, it's important to go over your options with the financial professionals you work with and make sure you have an estate plan that can protect your legacy from being eaten up by federal or state taxes.
You May Also Like
- HIPAA Authorizations and Your Estate Plan
- Unequal Inheritances for Your Children?
- Personal Finance Lessons from the Pandemic for 2021 and Beyond...
Next Steps
If you don't have a will, or if your will was drafted back when President Biden was still Senator Biden, let's set up a Legal Strategy Session to go over your options and make sure your legacy is protected.