Knowledge and Insights

If you remember in the Fall of 2021 lots of scary tax law changes came roaring out of the House Ways and Means Committee including significant changes that impacted estate planning.

The biggest threat was the reduction of the $11.7 million estate and gift tax lifetime exclusion that many estate planners were hoping would still be available through 2025. The final version of the Build Back Better Plan that passed the House and is currently stalled in the Senate removed that threat of reducing the exclusion to a lower amount (proposed was from $1 million to $6.6 million). Although there is no guarantee that the larger exclusion will be challenged again, at this point based on the current law, taxpayers have an indexed lifetime exclusion for 2022 of $12.06 million. That exclusion will continue to index annually to 2025 when the larger exclusion sunsets and reverts to approximately a $6 million lifetime exclusion. Without any further legislation – this is what will happen.

So, what does this mean for you? If you have an estate estimated at greater than $6 million you have just shy of 3 years to do some estate and gift planning to lower the estate tax bill that could result after 2025.

Other estate planning areas and tools that appear to be vulnerable in any potential tax bill include:

• Eliminating the income and estate tax advantages of Grantor Trusts, including Life Insurance trusts.
• The potential of eliminating the step up in basis of assets inherited at death.
• Phantom capital gain taxed at asset transfers.
• Increases in tax rates for individuals, estates, and trusts.

If you were contemplating updating or revising your estate plan to consider these potential threats – the time to start working on it is now. Estate planning takes careful consideration from your advisors and yourself, and it takes time to implement the planning. Three years is not a long time. Mercadien’s Estate Planning team can help you get started – contact us today.