The Estate Exclusion Expiration: What You Should Know

estate planning 2021

Did you know that in 1997, only $600,000 was exempted from estate taxes? This means that when a person died, any amount left to their heirs above $600,000 would be taxed at the (then) maximum tax rate of 55%.

Of course, the estate tax situation looks quite different today. In fact, the IRS just announced that in 2021, the inflation-indexed exemption will be $11,700,000 per person. Any unused amount from the first spouse to die can be used later by the surviving spouse. Plus, the maximum estate tax on amounts above that threshold has dropped to a rate of 40%.

Are Estate Tax Changes on the Horizon?

According to the Tax Policy Center, only about 0.1% of the estimated 2.7 million people expected to die in the coming year will have to pay any estate taxes at all. Historically, there has never been a year when the estate tax exemption was reduced.

This could end in four years unless Congress passes an extension. As a reminder, the current exemption is set to sunset at the end of 2025, at which point the exemption would automatically revert to what it was prior to 2018 ($5 million indexed to inflation).

However, changes may come sooner than we think, as President-elect Joe Biden’s tax plan calls for reducing the estate tax exemption amount to $3.5 million. President-elect Biden’s plan would also increase the top rate for the estate tax to 45%.

In addition, the plan’s reduced exemption would bring more Americans into estate tax territory — though it is uncertain whether this measure would pass in its current form, and it likely would not impact the 2021 tax year.

What Should You Do to Prepare for Changes (if any)?

Although the landscape is uncertain, many family stewards, thriving retirees, and high-net-worth family leaders are being proactive and have started talking to their financial advisors about the prospect of this estate tax change. Many of them are considering gifting to their heirs under today’s exemption without pushback under the current tax code.

As we look ahead to next year — with hopefully more normal days on the horizon and a mitigation of the COVID-19 pandemic — now is a good time to re-evaluate your entire financial picture, including your future or immediate plans for next-generation giving.

Aside from taking advantage of the tax code as it stands today, there are also a few estate tax strategies that you can put into place to retain control over your assets, if you need them in retirement, while allowing any increase in value to be passed on to your heirs tax-free.

At Empyrion Wealth Management, we’re here to help you focus on what you can control and increase choice in your financial life. We specialize in helping family stewards, thriving retirees, and women in transition maximize their assets for future growth and achieving their family giving goals.

Click here to download our Fiduciary Whitepaper to learn why it is critical to have a ‘trusted advisor’ guiding your Estate Planning strategy for 2021.

Stay Diversified, Stay YOUR Course!