Estate tax potential change

[SecondCor521]

It's still only proposed legislation, but the current proposal is to raise the estate tax to $15M per person, index it to inflation, and make it "permanent".

May be applicable to some people for estate tax planning purposes. But if you're already doing estate tax planning, you probably are already paying attention.

 

[Joylush]

This is welcome news. It definitely helps with planning. Might help to reduce the tax amount as well. They would collect more that way. Anyone who will lose 40% just for dying is just going to give it away before allowing that to happen- or at least I would.

 

[CaliKid]

This is welcome news. It definitely helps with planning. Might help to reduce the tax amount as well. They would collect more that way. Anyone who will lose 40% just for dying is just going to give it away before allowing that to happen- or at least I would.

The estate (death) and gift (lifetime) gifts are unified so you can't give it away during life to avoid the tax after death.

As for the tax exemption itself... it is currently around $13m per person so raising it to $15m doesn't change much. Also, that's per person so a married couple gets double that if they plan right. Doesn't apply to too many Americans. We all can dream though!

There are still a few states with much lower exemption amounts... and, amazingly, California is not one of them!

 

[braumeister]

There are still a few states with much lower exemption amounts... and, amazingly, California is not one of them!

Only 12 states have an estate or inheritance tax (Maryland has both). Certainly something that wealthy people need to take into consideration.

 

[Joylush]

The estate (death) and gift (lifetime) gifts are unified so you can't give it away during life to avoid the tax after death.

As for the tax exemption itself... it is currently around $13m per person so raising it to $15m doesn't change much. Also, that's per person so a married couple gets double that if they plan right. Doesn't apply to too many Americans. We all can dream though!

There are still a few states with much lower exemption amounts... and, amazingly, California is not one of them!

That’s only true when you give it to a private citizen/entity. But as far as I’m aware you most certainly can give it away without consequence to any qualified charity of your choice. Why do you think the super wealthy are so generous. I’m pretty well versed on the topic since I’m subject to it but if you know something I’m missing, let me know.

I know I will give anything left over the exemption amount away before giving it to the government. At least then I will control where it goes. The government has gotten enough of my money.

And it may be 15 million now but over time that will increase. So it’s an improvement and being permanent will help with planning the gifting.

 

[calmloki]

I was under the impression that the current $14M exemption was due to sunset absent action on the part of our leaders acting in concert.
Preparing for Estate and Gift Tax Exemption Sunset.

 

[Joylush]

I was under the impression that the current $14M exemption was due to sunset absent action on the part of our leaders acting in concert.
Preparing for Estate and Gift Tax Exemption Sunset.

You are correct. It will expire unless a change is made. The OP posted the proposed change being considered.

 

[pjigar]

It's still only proposed legislation, but the current proposal is to raise the estate tax to $15M per person, index it to inflation, and make it "permanent".

May be applicable to some people for estate tax planning purposes. But if you're already doing estate tax planning, you probably are already paying attention.

A lot of diligent investors on this forum may still blow past that limit when they finally kick the can. YMMV!

 

[Fermion]

I really hope I don't ever get more than $15M so my heirs don't have to deal with paying taxes!

 

[Joylush]

I really hope I don't ever get more than $15M so my heirs don't have to deal with paying taxes!

You can either make full use of every million of your money over the 15 million or you can give the government 400k of every million over the exempted amount. I’d rather make full and responsible use of my excess millions. Between what I can give away each year that isn’t counted against the exclusion and the exemption amount, the only taxes heirs will be responsible for are those due on annuities, taxable retirement accounts and any IBond type assets.
If the tax rate was more reasonable, like equal to the maximum long term capital gains tax rate of 20%, I might consider letting the government take some. But 40%, never.

 

[CaliKid]

That’s only true when you give it to a private citizen/entity. But as far as I’m aware you most certainly can give it away without consequence to any qualified charity of your choice. Why do you think the super wealthy are so generous. I’m pretty well versed on the topic since I’m subject to it but if you know something I’m missing, let me know.

I know I will give anything left over the exemption amount away before giving it to the government. At least then I will control where it goes. The government has gotten enough of my money.

And it may be 15 million now but over time that will increase. So it’s an improvement and being permanent will help with planning the gifting.

Yes, of course, you can give to charity during life or at death and nobody pays tax on that.

 

[Dash man]

The estate (death) and gift (lifetime) gifts are unified so you can't give it away during life to avoid the tax after death.

As for the tax exemption itself... it is currently around $13m per person so raising it to $15m doesn't change much. Also, that's per person so a married couple gets double that if they plan right. Doesn't apply to too many Americans. We all can dream though!

There are still a few states with much lower exemption amounts... and, amazingly, California is not one of them!

There are plenty of ways to give away your money without having to file a gift tax return to have it count against your estate tax exclusion. The 2025 exclusion is $19,000. The two of us have two boys, one daughter in law and three grandchildren. Right there we can give family $228,000. Add in siblings, nieces and nephews and it rises quickly. Then there’s charitable giving. The ultra rich often set up foundations and can put billions into it if they choose. But for us poor two comma folk, we can still help a lot of people.
We’ve been giving away a fare amount anticipating the exclusions would return to the pre-2017 rates. If the proposed changes take place, it won’t change our plans much.

 

[rodi]

I don't think this will ever be an issue for us - despite having a paid for house in coastal California...

 

[Joylush]

I don't think this will ever be an issue for us - despite having a paid for house in coastal California...

Well in my opinion it shouldn’t be an issue for anybody. You shouldn’t be penalized for saving your money- especially at the rate it’s taxed.

 

[SecondCor521]

There are plenty of ways to give away your money without having to file a gift tax return to have it count against your estate tax exclusion. The 2025 exclusion is $19,000. The two of us have two boys, one daughter in law and three grandchildren. Right there we can give family $228,000. Add in siblings, nieces and nephews and it rises quickly.

Yes, but:

1. After the first spouse dies, that number gets cut in half.

2. Someone with, say, $15M, invested and growing at, say, 7%, sees their net worth grow by a bit over $1M per year on average. Giving away $228K, they're still going to be growing by about $750K. And at 40%, that's an additional $300K of federal estate tax each year.

If you look ahead and see the problem, you do have more maneuvering room. And if you're charitably minded then you can solve it that way. But for non-charitably minded individuals who aren't paying attention, it can become unmanageable. Compounding can sneak up on you pretty easily.

 

[marko]

I would be surprised if an individual with a NW of $15MM or a couple with $30MM and more hadn't long ago put in place strategies to make this moot.

LLCs, irrevocable trusts, GSTs, gifting etc.

 

[CaliKid]

There are plenty of ways to give away your money without having to file a gift tax return to have it count against your estate tax exclusion. The 2025 exclusion is $19,000. The two of us have two boys, one daughter in law and three grandchildren. Right there we can give family $228,000. Add in siblings, nieces and nephews and it rises quickly. Then there’s charitable giving. The ultra rich often set up foundations and can put billions into it if they choose. But for us poor two comma folk, we can still help a lot of people.
We’ve been giving away a fare amount anticipating the exclusions would return to the pre-2017 rates. If the proposed changes take place, it won’t change our plans much.

For sure. Annual gifting is a great way to keep your estate size down. I think I was trying to say that the estate tax exclusion is high enough ($13m per person or $26m for married couple if set up right) that most people don't have to worry about it. Heck, even if the feds go down to $5m per person it's not a number that more than 1 or 2% of the population have to worry about it. Good for you if you have an estate tax concern.

 

[audreyh1]

It's still only proposed legislation, but the current proposal is to raise the estate tax to $15M per person, index it to inflation, and make it "permanent".

May be applicable to some people for estate tax planning purposes. But if you're already doing estate tax planning, you probably are already paying attention.

Dang!

 

[audreyh1]

For sure. Annual gifting is a great way to keep your estate size down. I think I was trying to say that the estate tax exclusion is high enough ($13m per person or $26m for married couple if set up right) that most people don't have to worry about it. Heck, even if the feds go down to $5m per person it's not a number that more than 1 or 2% of the population have to worry about it. Good for you if you have an estate tax concern.

The old estate tax exclusion is still indexed to inflation and projected to be around $7M per person in 2026 if it sunsets.

Also any remaining estate tax exemption from a deceased spouse is available to use with few hoops to jump through.

 

[SecondCor521]

For sure. Annual gifting is a great way to keep your estate size down. I think I was trying to say that the estate tax exclusion is high enough ($13m per person or $26m for married couple if set up right) that most people don't have to worry about it. Heck, even if the feds go down to $5m per person it's not a number that more than 1 or 2% of the population have to worry about it. Good for you if you have an estate tax concern.

Many of those 1% to 2% of the people who have to worry about it are probably here on this board.

The people in the $7M to $13M range are the people paying attention to this issue this year. Whether the law is changed or not, and how it is changed, affects those people's planning.

Not quite. Any remaining estate tax exemption from the deceased spouse is still available to use. Few hoops.

Understood and agreed about DSUEA; good point. What I was intending to point out is that since the annual gifting exclusion amount of $19K is per donor/donee pair, that part - the annual gifting part - does get cut in half. A couple planning on giving $228K per year from both to various kids/grandkids/etc to keep them below the estate tax limit will discover they can only give $114K per year after the first spouse's death. I was not clear enough.

 

[audreyh1]

Understood and agreed about DSUEA; good point. What I was intending to point out is that since the annual gifting exclusion amount of $19K is per donor/donee pair, that part - the annual gifting part - does get cut in half. A couple planning on giving $228K per year from both to various kids/grandkids/etc to keep them below the estate tax limit will discover they can only give $114K per year after the first spouse's death. I was not clear enough.

I realized immediately afterwards that you were referring specifically to the annual gift exemption which definitely gets cut in half from couple to single and so deleted that post.

 

[RetiredHappy]

I am glad I don't have to worry about it.

 

[RetMD21]

It's still only proposed legislation, but the current proposal is to raise the estate tax to $15M per person, index it to inflation, and make it "permanent".....

Permanent?

 

[SecondCor521]

Permanent?

Well, I put it in quotes for a reason.

The TCJA increase had a sunset built in. The current proposal does not. So it is permanent until we change the law again.

 

[Dash man]

Many of those 1% to 2% of the people who have to worry about it are probably here on this board.

The people in the $7M to $13M range are the people paying attention to this issue this year. Whether the law is changed or not, and how it is changed, affects those people's planning.



Understood and agreed about DSUEA; good point. What I was intending to point out is that since the annual gifting exclusion amount of $19K is per donor/donee pair, that part - the annual gifting part - does get cut in half. A couple planning on giving $228K per year from both to various kids/grandkids/etc to keep them below the estate tax limit will discover they can only give $114K per year after the first spouse's death. I was not clear enough.

The government will always be willing to take the tax early if significant Roth conversions are done before one spouse passes. It reduces the RMDs for the surviving spouse and allows more investments to grow income tax free
The income tax rates are still better than the estate tax rate.