How will estate planning change?
You may have seen headlines over the past few months about the new administration’s plans to shake up taxes and redistribute wealth. You might wonder how this will affect your estate plan.
It depends on how much wealth you have. The more you own, the greater the effect the proposed changes could have.
Transferring assets sooner could save you a considerable amount of tax
Under the current rules, you can transfer up to $11.7 million tax-free at death. If you double that as a couple, you get $23.4 million. Suggestions are that this estate tax threshold will reduce, perhaps by as much as half. If that seems shocking, remember the only reason it is so high is that the previous administration doubled it.
If your assets are over the new threshold, you might have to pay an increased rate of tax on them. Suggestions are of a tiered system, where the more you leave, the more they tax you.
One of the other ways you have to transfer assets tax-free is by using your annual gift allowance. It stands at $15,000 per person or $30,000 per couple per year. That could drop under new plans, so it may make sense to gift money to family members now. Remember that those figures are the limit per receiver. As a couple, you could give $30,000 to your son, $30,000 to your daughter and so on.
If you are not rich, the proposed changes may have little effect on you. Yet, it is crucial to stay informed. So far, it is all rumors, and there could still be changes that affect you. Remember, there can also be updates that work to your advantage. A regular review of your estate plan can help you take advantage of the rules.