Estate Planning Doomsday is Coming!

Dear Friends, As you’ll see, we have a lot of fun in our video referring to possible estate tax changes as a Doomsday Event! The good news is that those with charitable hearts have some really wonderful planning options. Since the opportunity to use those charitable options might soon be reduced – our “Doomsday Event” – we thought we should write and let you know. But before getting into the details, we want to share a blessing that can help us all keep taxation in its proper perspective. That blessing is the introductory language of Billy Graham’s will, which you can click below to read. Don’t miss it! This wonderful, humble man affirms his faith in Christ, praises his family, and candidly discusses how he and Ruth handled their finances. I don’t think it’s possible to read this and be worried about taxes at the same time!

This wonderful, humble man affirms his faith in Christ, praises his family, and candidly discusses how he and Ruth handled their finances.

In terms of possible changes, the starting point is to note that the current estate and gift tax laws are as favorable as they have been in decades. Anyone can give or leave $11.58 million in assets to their heirs, $23.16 million per couple, without any gift or estate tax[1]. Those gifts or bequests can be made with any assets and can be left outright or in trust. Everything over the exemption amount is taxed at 40%. Under the previous law, the exemption was only $5.49 million or approximately $11 million per couple. From 1935 to 1982, the highest estate tax rate was always over 70% and as recently as 2001, the exemption amount was only $657,000. There are reasons to be concerned that we might return to lower exemptions and higher rates sooner rather than later. The favorable exemptions expire automatically in 2025 when the much lower amounts are reinstated.

Under the previous law, the exemption was only $5.49 million or approximately $11 million per couple.

The more immediate threat is that the government can raise the rates or reduce the exemptions at any time. It is not a partisan comment to observe that estate taxes are more likely to go higher if the Democrat party regains control of the White House and Senate in the November elections. The current favorable laws were passed in 2017 without a single Democrat vote in either the House or the Senate.

The more immediate threat is that the government can raise the rates or reduce the exemptions at any time.

Last year, Senator Harris proposed raising estate taxes to pay for educational programs. More recently, former Vice President Biden proposed eliminating the step up in basis for inherited assets. His proposal would effectively impose capital gains taxes (which he also proposes increasing to ordinary income rates) on virtually all bequests of appreciated assets from parents to their children and grandchildren.

Last year, Senator Harris proposed raising estate taxes to pay for educational programs. More recently, former Vice President Biden proposed eliminating the step up in basis for inherited assets.

For planning purposes, families with substantial assets should view the next few months as the only reliably open window for making gifts to their children under the current favorable laws. Since taxes cannot be imposed retroactively, completed transactions should be beyond the reach of future higher taxes. Tax law changes passed in 2021, however, could be made effective as of January 1st of that same year. That’s why it’s important to consider making completed gifts to your children this year.

Tax law changes passed in 2021, however, could be made effective as of January 1st of that same year.

There are only a few things anyone needs to know to help you evaluate your options. Those include your approximate net worth, the amounts you would ultimately like your children or grandchildren to receive, the part, if any, of your lifetime exemption you have already used and the portion, if any, that you would like to give to charity. Pretty much all planning, no matter how sophisticated, begins with those four questions. You can download a copy of the Charitable Estate Planning Self-Assessment Form here. This is a checklist to use on your own – you do not need to send us this information – to help you prepare for a conversation with your estate planning attorney. Feel free to call or email us, of course, if you have any questions about the form. There are also some planning techniques, such as a Charitable Lead Trust, that can help those who want to pass assets to their children in the future AND support ministries today. This tool is particularly helpful for those with very substantial estates (more than $20 million) as there are no limitations on the size of such trusts or on the amounts that can be passed tax-free to your heirs. These are difficult topics. Most of us would rather play golf or go out to dinner than think about death taxes. But it would be a shame to have a wonderful planning window close while you are standing over a putt on the 18th green or finishing your last bite of baked Alaska. If you are wrestling with a substantial estate and have any questions about charitable techniques… or just want to know what’s possible… please feel free to send me an email or give me a call. Since the goal of any conversation we might have is to help you work effectively with your attorney, we can even chat over lunch or golf! If you have questions about this article, please send me a message using the form below. Blessings, Bob Fry