ISSUES WITH ESTATE TAXATION :
How to Protect Your Estate
A recent article in the Wall Street Journal reports that older Americans have stockpiled $ 35 trillion , and that the time has come for many of them to give it away to heirs and charitable organizations . Many of those that have accumulated wealth over their careers in business are no longer willing to wait until they pass away to give their wealth to beneficiaries . The question is : Why are these individuals starting to give to the next generation or to charity now ?
Threats to Your Estate : New Considerations
Individuals are looking to develop a plan to transfer their wealth for many reasons . Some would like to enjoy watching their children or grandchildren be able to use funds to purchase homes , start a business , or just be able to enjoy a standard of living that they are accustomed to .
There are also compelling tax reasons for individuals to develop a wealth transfer plan . Over the past few years , we have seen the lifetime estate exemption rise from $ 1 million to $ 11.7 million for individuals ( double that for a married couple ) without any other major changes to the method in which an estate is taxed . Today , the current Administration and Congress are seeing eye-to-eye on taxation of the “ rich ” and seeking a more equitable distribution of wealth for future generations . There are three pieces of proposed legislation that would drastically change estate and gift taxation in the U . S .
The three pieces of legislation include :
• General Explanations of the Administration ’ s Fiscal Year 2022 Revenue Proposals ( also known as President Biden ’ s Green Book )
Collectively , these proposals aim to institute a capital gains tax on wealth transfers , reduce the lifetime estate exemption ( some as low as $ 3.5 million ) and limit the use of traditional tax planning vehicles , including the limitation of valuation discounts for the transfer of a business . The effect of these proposals could be as a tax rate as high as 60 percent , leaving only 40 percent of your estate for your heirs .
Each of these proposals is in a different stage of life , and we are not able to predict the final outcome yet . What we can safely predict though is that some estate law changes will make likely pass in an effort to increase the amount of tax flowing into the government coffers .
How do you know if you should take action soon ? The current lifetime exemption is $ 11.7 million ($ 22.4 million for a married couple ), but even without any action by Congress that is set to halve in 2026 to somewhere between $ 5.49 million to $ 6 million . So the first step is to take a look the value of your taxable estate . We suggest that anyone with a taxable estate more than $ 3.5 million contact their accountant and estate advisor to discuss if the benefits of developing a wealth transfer plan .
by : David Shallenberger , CPA Senior Manager
545 North Market Street Wooster , Ohio 44691-3465
( 234 ) 249-3455 david . shallenberger @ reacpa . com
• The 99.5 % Act
• The Sensible Taxation and Equity Promotion ( STEP ) Act