Most individuals work hard their entire lives to save money and acquire valuable items or residences. However, only around 30% of Americans have a will that details how they want their money, homes, and things distributed after they pass away.
Although those with higher incomes are generally more likely to have an estate plan than those with lower incomes, only approximately 55% of Americans with annual salaries over $75,000 have a will. Then, further, in this article, we state three tax strategies to implement with an estate lawyer.
A person creates an estate plan to specify how their estate will be divided after passing. No matter how much or how little you make or have saved each year, it’s unpleasant to think that a probate court will decide who receives what you leave behind after you pass away. Making a will with a skilled estate lawyer can go a long way toward avoiding disagreement and complications among your heirs after your passing and can help ensure that your hard-earned money does not disappear into thin air.
Higher exemption levels for federal estate and gift taxes were established by the Tax Cuts and Jobs Act (TCJA), albeit they may be changed in a few years, if not sooner.
Federal gift and estate tax provisions in the TCJA will expire after 2025. However, federal assistance and estate tax law will typically revert to 2017 regulations if Congress does not act before then. If so, exemption thresholds will be lowered, and more estates will be exposed to federal taxes.
State 3 tax strategies to implement with an estate planning lawyer
Although the current tax landscape may be advantageous, it is still advisable to consider tax-efficient planning techniques.
- Examine estate planning strategies and documents
For some people and families with income below that threshold, the increase in the lifetime exclusion amount for gifts and estates ($11.7 million per person in 2021) may have unforeseen implications. As a result, they could believe that making an estate plan is unnecessary. Taxes are only one aspect of estate planning, though. Planning for an orderly transfer of assets or unanticipated events like incapacitation is still essential. The use of wills, powers of attorney, health care directives, revocable trusts, and proper beneficiary designations on retirement accounts and insurance policies are among the strategies to take into account. A review of existing beliefs is also necessary to see if any modifications are required in light of the most recent changes to the tax code.
- Make preparations for possible state estate taxes.
While the federal estate tax receives much attention, some residents should know that many states also impose estate or inheritance taxes. Many states have “decoupled” themselves from the federal estate tax regime. This indicates that the state uses various tax rates or exemption limits. A taxpayer’s net worth can be much below the $11.7 million exemption threshold for federal estate taxes while also being significantly higher than the threshold for the state in question. On specific state law and potential ways to reduce state estate or inheritance taxes, like using permanent life insurance to provide liquidity at death, it is crucial to seek legal advice.
- Create a plan for assets with low cost-basis
The step-up cost will maintain after the transfer of property. Therefore, it is essential to consider lifelong gifts that could jeopardize a step-up in price basis at death. Usually, the recipient takes on the original cost base of a miracle. Further, specific trust clauses may ensure that assets’ cost bases will increase upon death.
An Estate planning lawyer is still essential to implement tax strategies.
Even if the majority of estates won’t exceed the present exemption amount, this doesn’t indicate that only those with substantial wealth should pay attention to estate planning. Planning an estate properly involves more than just reducing or being ready for federal estate taxes. Investors must have an estate plan in place to enable a smooth transfer of wealth to heirs or charitable organizations. To avoid state taxes and expensive probate procedures, people require methods.
Speaking with a financial counselor before making any modifications to the estate or gift plans is crucial. People should deal with an experienced estate planning lawyer when exploring advanced tactics. They are familiar with their financial status and objectives. Read Putnam’s “10 Income and Estate Planning Tactics” for more information. It has discussed tax-smart strategies for 2021 and more detail on tax-planning concepts.