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A Big Opportunity for Estate Planning in 2019 and 2020

Current Estate and Gift Tax Laws
   

The U.S. has a transfer tax system, meaning that you will pay a tax on the privilege of transferring wealth from one person to another. When you’re alive, it’s called a gift tax. When you die, it’s called the estate tax.

Currently, as of 2019, every individual can give away $11.4 million at life or death without paying taxes on it. So if you give away half of it during your lifetime, then you can give away the other half at death. Once you’ve given away more than $11.4 million, you’ll start to pay taxes on the privilege of transferring that wealth, which is currently at 40%.

So a married couple can give away close to $23 million without having to pay any taxes on it, which is a pretty substantial number.

Looking back over the past 10 years

The gift and estate tax exemptions have changed quite a bit over the past ten years. Ten years ago, the exemptions were just a little over one million dollars per person. Then a handful of years ago, it went up to $5 million per person. Now it's at $11 million per person, which is a dramatic increase.

The estate and gift tax laws have been a hot topic for quite some time, and the current exemptions are the highest they’ve ever been in U.S. history. It’s unlikely that things are going to stay at this level, so we are encouraging our clients to take a closer look at it today.

Here are ways you can take action

Many of our clients tell us that they’re not ready to give away wealth to their children or grandchildren just yet, as they are still growing and have many years ahead of them.

We understand that but want to remind you that there are other ways to take action besides giving it all away to your children right now.

Let’s look at a married couple, for example. A couple can separate their assets today by putting them into a trust for the benefit of their spouse. A trust is an excellent estate planning tool. First, it’s creditor protected. Second, it doesn’t die. When assets are placed into a trust, they’ll grow in value. When the husband or wife passes away, there will be no estate tax since the trust owns those assets.

Remember that we are talking about a $23 million level. If that $23 million that you and your spouse put into trusts were to grow up to $40 million, there would be no estate tax on that entire amount. Those assets can then pass through to your beneficiaries rather than going to Uncle Sam.

What if we have a change in political power next year?

While you can wait until the election next year to take action, our advice is to take advantage of a good thing while it’s here. Here’s a good reason why.

A few years ago, Congress passed a bill where there was a change in depreciation laws. The bill was introduced one month, but it didn’t pass for many months later. When the bill passed, Congress actually said that the law would go into effect as of the date the bill was first introduced. This prevented people from being able to take action during the in-between time of the law passing. From the first day the new law was introduced, it was already too late to take action.

Don’t let this happen to you. If the gift and estate tax exemption goes back down to $5 million, then you could miss the opportunity to give away $11 million simply because you waited too long.

Nobody likes a last-minute fire drill

Our advice is to take care of things when there’s not an immediate rush to get things done. Nobody likes a last-minute fire drill. Take your time to walk through it with a professional and understand exactly how everything is going to work.

Here's How Our Advisory & Consulting Services Can Help You

The concept we shared about a married couple creating separate trusts is just one fundamental way that families can address this opportunity. Give us a call. Let us help you design a plan that works for you and your loved ones.

It’s your hard-earned money, and you should be able to decide what you want to do with it.

Let us help you with estate planning today!

September 19, 2019