Federal Estate Tax

[Letj]

I believe the current exemption for a couple is about $24MM and will likely be about $7MM. This means that a lot of the folks on this board will likely be affected and certainly so if they live long enough (just look at fire calc projections on ending balances). With that in mind, doesn’t it make sense to donate any assets left over above and beyond the estate exemption to charity given the huge chunk of it going to Federal and state taxes ( could exceed 50%)?

 

[Joylush]

I believe the current exemption for a couple is about $24MM and will likely be about $7MM. This means that a lot of the folks on this board will likely be affected and certainly so if they live long enough (just look at fire calc projections on ending balances). With that in mind, doesn’t it make sense to donate any assets left over above and beyond the estate exemption to charity given the huge chunk of it going to Federal and state taxes ( could exceed 50%)?

Yes it does. But it’s impossible to plan when the rules change from year to year. I’d like to make sure property isn’t forced to be sold just to be able to pay the taxes.

 

[donheff]

I believe the current exemption for a couple is about $24MM and will likely be about $7MM. This means that a lot of the folks on this board will likely be affected and certainly so if they live long enough (just look at fire calc projections on ending balances). With that in mind, doesn’t it make sense to donate any assets left over above and beyond the estate exemption to charity given the huge chunk of it going to Federal and state taxes ( could exceed 50%)?

Why $7m for a couple. Doesn't current law say it will return to the original $5M each or $10M joint, adjusted for inflation?

 

[SecondCor521]

Why $7m for a couple. Doesn't current law say it will return to the original $5M each or $10M joint, adjusted for inflation?

Not the person who wrote that, but:

The exclusion amount in 2022 is $12.06M per person. On 1/1/2026, pending further legislation, I think the 2026 number will be the 2025 number, plus inflation, divided by two.

The way the law is written, there is basically the regular annual inflation adjustment which has been going on for years, and there is a special clause which currently doubles the number and which expires 12/31/2025.

So it'll depend on inflation between now and whenever point in the future one is discussing. And Congress, of course. But $7M would be a plausible number for a few years from now.

 

[audreyh1]

~$7M per person, not joint.

 

[donheff]

Not the person who wrote that, but:

The exclusion amount in 2022 is $12.06M per person. On 1/1/2026, pending further legislation, I think the 2026 number will be the 2025 number, plus inflation, divided by two.

The way the law is written, there is basically the regular annual inflation adjustment which has been going on for years, and there is a special clause which currently doubles the number and which expires 12/31/2025.

So it'll depend on inflation between now and whenever point in the future one is discussing. And Congress, of course. But $7M would be a plausible number for a few years from now.

Yes, but you would be projecting a $14M exemption for married with the first to die passing his or her $7M on to the spouse, right? The original comment sounded like $7 was the total. Note: I read some article that seemed to imply that in 2026 you would not just reduce the then amount by one half, but would revert to the actual ~$5M previous level and then adjust that up for intervening inflation. But that's just a nit to be worked out. The important point for us moderately rich first worlders is that the exemption would be per person and transfer to the surviving spouse.

 

[Joylush]

https://www.krostcpas.com/tax/estate-tax-current-law-2026-biden-tax-proposal

 

[donheff]

https://www.krostcpas.com/tax/estate-tax-current-law-2026-biden-tax-proposal

I found that article a little confusing. I understand the basics (the $11.7M current exemption reverts to the $5.5M previous level and is then adjusted by inflation to around $6M, per person) The rest of the article doesn't mention portability and talks about taxes as they would apply to an individual with a big estate.

I am assuming the 2026 $6M would be portable to a surviving spouse. Am I wrong about that?

 

[Dash man]

I am assuming the 2026 $6M would be portable to a surviving spouse. Am I wrong about that?

No, you’re not wrong. That’s the way our attorney explained it under current law.

 

[SecondCor521]

Yes, but you would be projecting a $14M exemption for married with the first to die passing his or her $7M on to the spouse, right? The original comment sounded like $7 was the total. Note: I read some article that seemed to imply that in 2026 you would not just reduce the then amount by one half, but would revert to the actual ~$5M previous level and then adjust that up for intervening inflation. But that's just a nit to be worked out. The important point for us moderately rich first worlders is that the exemption would be per person and transfer to the surviving spouse.

Well, it gets complicated.

Typically the first to die can leave unlimited amounts federally estate tax free to the surviving spouse.

There is something called the DSUEA (sometimes referred to as a portability election) and bypass trusts which generally allow the first to die to use all of their exemption amount. There are other more complicated estate tax maneuvers that can be investigated.

As you and @audreyh1 correctly point out, my use of the $7M number was per person, although my previous post wasn't as explicit about that as perhaps I should have been. The other poster may have meant joint, I dunno.

As far as the nit goes, what you wrote seems to just be explaining the same thing two different orders (inflation adjust then divide by two, or divide by two then inflation adjust), and the math works out the same in the end.

 

[Joylush]

I wonder if there is a minimum amount of time one must be married to qualify for the double exemption?

 

[Retired Expat]

Actually the executor is on the hook. So payout can be partial holding back what is needed to pay expenses, taxes and ultimately the beneficiaries after State and Fed sign of on the closing of the estate.

But the estate pays and will need a Federal ID number. It took close to 3 years to settle the last estate I was executor of simply because the State wouldn’t close the file and accept the estate tax return. U

 

[Exchme]

The federal estate tax reverting in 2026 to the old values should make folks that may run into those lower limits ($6.03M per person, $12.06M for MFJ in 2022 $) start to take action. Folks should take the upside cases in FireCalc seriously, there is a decent possibility that a lot of forum members here could be above those limits by the time the last surviving spouse passes.

The best time to take action is before the snowball rolling down the mountain gets too large. So that should push towards more aggressive Roth conversions to avoid estate on the embedded income tax liability that heirs will have as they withdraw the inherited IRA or to QCDs if so inclined. Since those are kind of opposite directions, planning is needed.

Also, consider gifts to the kids if they are responsible. The 2022 annual gift exemption limit is $16K per donor/donee pair. Over time, that can help slow down estate growth and if bad returns show up or heir behavior turns bad, the gifts can be cut back or stopped.

 

[Letj]

Why $7m for a couple. Doesn't current law say it will return to the original $5M each or $10M joint, adjusted for inflation?

I am not quite sure of the number myself but my estate attorney said it’s likely to be $7MM per couple based on how the law is written. I assumed it would be $10MM but my attorney seem to disagree.

 

[USGrant1962]

I am not quite sure of the number myself but my estate attorney said it’s likely to be $7MM per couple based on how the law is written. I assumed it would be $10MM but my attorney seem to disagree.

Last year the President has proposed a $3.5M/person lifetime exemption, presumably $7M per couple, along with raising the rate to 45%. Perhaps that's where the number came from. That was dropped in more recent bills.

 

[SecondCor521]

I wonder if there is a minimum amount of time one must be married to qualify for the double exemption?

Long enough to change the will, the title to property, and the beneficiary forms.

Seriously, I've never heard of one. Doesn't mean there isn't one.

The happy couple still needs to set up their estate well to benefit from both exemptions, but most competent estate planning attorneys should be able to advise on how to do that.

There are minimum timeframes for spousal SS benefits I think.