Estate tax potential change

[SecondCor521]

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.

Good point. Roth conversions can help with estate tax indirectly because the taxes paid on the Roth conversion is money that is no longer in the estate.

There is a little known thing called IRD which does come into play in the analysis, but that's beyond my pay grade or understanding other than to know it exists and could matter in the decision making.

 

[RetMD21]

Well, I put it in quotes for a reason.

Right. It seems like we are in for never ending and unpredictable changes. I thought the situation before the
TCJA was the permanent one. I was young and naive

 

[WhenIsItTime]

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.

Market has been strong for many years. Sneaks up on you and many get in this situation by LBYM (not spending it).

Thus, many likely don’t have plans to give it away or burn it off. Certainly good problem to have.

 

[gumshoe]

Market has been strong for many years. Sneaks up on you and many get in this situation by LBYM (not spending it).

Thus, many likely don’t have plans to give it away or burn it off. Certainly good problem to have.

Yup! That's exactly what happened to me. Never thought I would blow past the current fed. estate tax exemption for a single person. Will have a couple of very surprised but happy nephews and niece when I kick the bucket . . . unless the stock market and real estate market have a major reversal. (They have no idea what I have.) Hopefully, the exemption will increase, stay permanent, and keep up with inflation.

 

[socca]

The proposed increase in the estate tax exemption to $15M from a bit under $14M puts an additional $400k in the pockets of some lucky heirs. I was idly wondering how many years the typical American with a typical job and typical lifestyle (neither extremely frugal nor profligate) must work to have $400k of discretionary income in their pocket. I don’t know, but I suspect that it’s more than one. Of course, the question of which group is more worthy of support - heirs or non-heirs - is mostly political and out-of-scope for this website.

 

[Joylush]

The proposed increase in the estate tax exemption to $15M from a bit under $14M puts an additional $400k in the pockets of some lucky heirs. I was idly wondering how many years the typical American with a typical job and typical lifestyle (neither extremely frugal nor profligate) must work to have $400k of discretionary income in their pocket. I don’t know, but I suspect that it’s more than one. Of course, the question of which group is more worthy of support - heirs or non-heirs - is mostly political and out-of-scope for this website.

I don’t think it’s a matter of worthiness. It’s more a matter of fairness. The government takes 40% of net worth over a certain amount from you simply because you died? If the tax percentage was more reasonable, like maybe 20% it would be less egregious. And I think they’d collect far more that way instead of being so shortsighted. Most people having over the exemption amount would rather give all of the amount over to charity to keep it out of the government hands to waste as they see fit. They might think twice if the penalty was less severe.

 

[statsman]

In one regard, reading this thread was depressing. None of this matters to us personally unless they reverted back to the $1M limit.

 

[gumshoe]

"In addition to the federal estate tax, with a top rate of 40 percent, 12 states and the District of Columbia impose additional estate taxes, while six states levy inheritance taxes. Maryland is the only state that imposes both an estate and an inheritance tax.

Estate taxes are paid by a decedent’s estate before assets are distributed to heirs and are thus imposed on the overall value of the estate. Inheritance taxes are remitted by the recipient of a bequest and are thus based on the amount distributed to each beneficiary.

Most estate and inheritance taxes are progressive, with the tax on a decedent’s estate or a beneficiary’s inheritance exposed to rates that increase with the total value of assets. Hawaii and Washington have the highest top marginal estate tax rate at 20 percent, assessed on estates valued at $15.49 million and $9 million, respectively. Seven other states and the District of Columbia assess a 16 percent top marginal estate tax rate on estates valued between $2 million (Massachusetts) and $10.04 million (Illinois). Connecticut is the only state with a flat estate tax rate of 12 percent. Combined with its high exemption value of $13.61 million, Connecticut has a well-structured estate tax that makes it suitable for possible reforms and eventual elimination.

Likewise, Iowa has the lowest inheritance tax rate in the nation at 2 percent, while Kentucky and New Jersey have the highest top marginal inheritance tax rate of 16 percent as of January 1, 2024."
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Unfortunately, I reside in one of the states that has the lowest STATE estate tax exemption, as well as one of the two states that has the highest top marginal estate tax rate (according to the above info). So, the Feds get you at 40% over the exemption and some States get you too! Just glad my State does not also have an inheritance tax like Maryland, which has both.