Biden Tax hike causes wealthy Americans to panic over estate planning strategies

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When an individual passes, their assets could be subject to estate taxes and inheritance taxes, depending on where they lived and how much they were worth. While the threat of estate taxes and inheritance taxes is real, in reality, the vast majority of estate are just too small to be charged a federal estate tax, which, as of 2021 applies only if the assets of the deceased individual are worth $11.70 million or more. For this reason, you expect the wealthy to panic when a tax hike is been discussed.

Estate Taxes

For tax reasons, these levies, both federal and state, are scrutinized on the estate’s fair market value, rather than what the deceased originally paid for their assets. While that denotes any appreciation in the estate’s assets over time will be taxed, it also protects against being taxed on peak values that have been put aside. For instance, if a house was purchased at $5 million, but its current market value is 44 million, the latter amount will be adopted.

Anything in the estate that is transferred to a surviving spouse is not considered in the total amount and isn’t subject to estate tax. The right of spouses to leave any amount to one another is regarded as the unlimited marital deduction. But, when the surviving spouse who inherited an estate passes, the beneficiaries may then owe estate taxes if the estate is more than the exclusion threshold. Other deductions, such as charitable donations or any debts or fees that comes with the estate, are also not added to the final calculation.

An heir due to receive money or assets can decide to reject the inheritance through the use of an inheritance or estate waiver. The waiver is a legal document that the heir signs, refusing the rights to the inheritance. In such a situation, the executor of the will would then designate a new beneficiary of the inheritance. An heir might decide to waiver their inheritance to prevent paying taxes or avoid having to maintain a house or other structure. An individual in a bankruptcy proceeding might also decide to sign a waiver so that the property can’t be taken by creditors. State laws decides how the waiver works.

Joe Biden Tax Hike

The tax cuts and Jobs Acts essentially doubled the basic exclusion amount to $11.58 million in 2020 ($23.16 million if married). Assets surpassing that threshold are subject to a rate as high as 40%.

Biden’s plan would undo that change, meaning individuals would be able to move fewer assets without activating the tax. Biden would also do away with step-up in basis, which means unrealized capital gains would be taxed at death.

While the recent hike is causing the wealthy folks to panic, there are multiple ways advisers can help their clients adapt the tactics to account for potential modifications, including leveraging current rates, transferring assets at a discounted value and addressing asset control queries.

Need an Estate Planning Attorney?

Planning an estate can be quite difficult, especially if you control a large estate. There are a lot of things to consider, legal documents to set up, and paperwork to figure out. Handling this by yourself is impossible. Thus, you will need the help of a professional, someone who know estate planning like the back of his hands.

An estate planning attorney will help ensure that your estate is planned according to your wishes and situation. If you have minor children, he will ensure that he make provisions for guardian who will be decided by you. This professional will carefully study your situation and draft a fitting estate plan. In addition, if you need advice or if you already have an estate plan but need to update it, an estate planning attorney can be of help. What of those estate planning documents? An estate planning attorney can help you prepare them.

Contact us

If you need an estate planning attorney for your estate plan. Or you need advice on how to cut down estate taxes, don’t hesitate to contact our office.

DISCLAIMER: The information provided in this blog is for informational purposes only and should not be considered legal advice. The content of this blog may not reflect the most current legal developments. No attorney-client relationship is formed by reading this blog or contacting Morgan Legal Group.

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