Blog

Prepare Your Estate for Higher Taxes

Matt Edrington

As we head into the fall, discussions about federal tax legislation are ramping up in Washington D.C. Sweeping estate tax changes have been proposed, including a reduced estate and gift tax exemption, higher estate tax rates, and a repeal of the step-up in basis rule.

Although these changes are a long way from fruition and likely won’t be enacted in their current form, now is a great time to consider estate planning strategies so that you’re prepared for possible changes.

  • Plan for a lower exemption threshold. The Tax Cuts and Jobs Act (TCJA) doubled the exemption from $5 million to $10 million with inflation indexing ($11.7 million in 2021). After 2025, it is scheduled to revert back to $5 million, but it may scale back to $3.5 million before then and limit the lifetime gift exemption to $1 million. Be prepared to amend trusts and wills to reflect these potential reductions.
  • Plan for a higher estate tax rate. The top estate tax rate of 40% has remained in effect since 2013, but could be increased in conjunction with other changes. A higher tax could expose more assets to estate tax. Consider reducing the size of your taxable estate through lifetime gifts and other strategies.
  • Plan for eliminating step-up in basis. For estate tax purposes, the value of inherited assets is stepped up to its fair market value on the date of death. Therefore, if an heir sells inherited assets soon after death, there’s usually little or no income tax liability. If this rule is repealed, heirs may face a much higher capital gains tax (The current proposal provides a $1 million exemption). Consider shifting appreciated property out of your estate if this change is made.
  • Plan for other related changes. Another proposal would hike the tax rate for long-term gains from 20% to 39.6% for individuals earning more than $1 million a year. Higher-income taxpayers would also continue to grapple with the 3.8% net investment income tax on top of any capital gains tax. This one could really hurt farm families and small business owners looking to sell.

The combination of a higher capital gains tax and the rollback of estate tax breaks may necessitate changing your estate’s tax plan. And if you are planning on passing a business or farm to heirs it is more important than ever to consider your options. Please call if you have any questions on how to proceed.

No Professional Advice, Client Relationship, or Reliance on Information

Please note that any information or content on our Website, or any forms or tools on our Website which allow you to submit information or make calculations, and your use thereof, are not intended to provide any kind of professional advice, consultation or service, including but not limited to, legal, accounting, tax, or business advice. Nor does any such information, content, forms, or tools, or your use thereof or reliance thereon, create or constitute an attorney/client, accountant/client, or consultant/client relationship. You should therefore not use our Website or reliance on any information, content, forms, or tools on our Website as a substitute for any kind of professional advice. Rather, you should consult with a licensed professional, including one employed by our Company, for any accounting or tax questions you may have. You agree that we will not be liable to you or to any third party to the extent you treat or consider any information, content, forms, or tools on our Website as constituting any kind of professional advice. The information and content, including but not limited to forms and tools, presented on or made available through our Website are made available solely for general information purposes. We, therefore, do not warrant the accuracy, completeness or usefulness of any such information, content, forms, or tools, and any reliance you place on the same is strictly at your own risk.  We disclaim all liability and responsibility arising from any reliance placed on such materials by you or any other visitor to our Website, or by anyone who may be informed of any of its content.

Our Website provides illustrative lists of services that we provide. Nothing contained on our Website shall be construed as an offer or guarantee to provide any particular services to you, nor shall anything on our Website be construed as a direct solicitation for employment by any persons, companies, or organizations. Prior results we have obtained for others do not guarantee a similar outcome.

Share This
Beaird Harris

Your Tax Season Checklist

Get ahead of tax season with our comprehensive checklist! From organizing individual documents to business deadlines, streamline your tax filing process for 2024 with Beaird

Read More »
schedule call

Schedule a complimentary call today.

We’ll help you get started and learn more about Beaird Harris.