“Use It or Lose It?” Keeping an Eye on Tax Law Changes

With all the wrangling currently going on in Congress over a variety of issues, it can be a challenge to “keep your eye on the ball” concerning potential changes to the tax laws, especially as they affect high–net worth individuals and families. But right now isn’t the time for inattention, as certain provisions are being debated that could take effect as early as the end of this month. For certain individuals, it could look like more of a “trick” than a “treat.”

The principal issue is the net worth threshold for exemption from estate taxes. You probably remember that the Tax Cuts and Jobs Act (TCJA) of 2017 raised the bar to $11.7 million ($22.4 million for couples) before estate taxes would be imposed upon the transfer of the estate to the deceased owners’ heirs. This provision was already scheduled to “sunset” in 2025, but the current bill being debated in Congress could lower the threshold to something in the neighborhood of $6 million ($12 million for couples), and the new, lower requirement could take effect when the law is passed, which some observers believe could happen as early as October 31, 2021 (next week).

Another provision that is of great potential impact to high–net worth entities is the elimination of most benefits of the grantor trust, an estate planning tool that is often used to exclude assets from an estate for estate tax purposes. The new provisions would force the inclusion of assets held in certain grantor trusts at time of the grantor’s death for calculating the total value of the estate. Again, these provisions would take effect at the time of the passage of the legislation, not after the first of the year, as is often the case with such changes.

Clients with estates valued at $6 million or more ($12 million or more for couples), including assets held in grantor trusts, would be well advised to review their current estate planning documents and consult with their estate planning professionals to evaluate the likelihood of being swept up in the new legislation.

Certain clients may have the means to fully fund the lifetime gift and estate tax exclusion by transferring assets to a grantor trust, but it may be important to do it sooner, rather than later, given the possibilities discussed above. In other words, it may be “use-it-or-lose-it” time for high–net worth individuals who want to shield assets from estate taxes.

As a fiduciary financial planning firm, the central goal of Empyrion Wealth Management is to provide timely, authoritative information for clients who are seeking to provide maximum benefits for their heirs and the causes that are most important to them.  If you have questions about how the new tax law could affect your financial or estate planning, our network of tax and estate planning professionals can help you get the answers you need. To learn more, click here to read our article, “Where There’s a Will: Essentials of Estate Planning.”

Stay Diversified, Stay YOUR Course! 

Empyrion Wealth Management (“Empyrion”) is an investment advisor registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. Information pertaining to Empyrion’s advisory operations, services and fees is set forth in Empyrion’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Empyrion. The information contained in any third-party resource cited herein is not owned or controlled by Empyrion, and Empyrion does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Empyrion of the third party or any of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner or investment advisor.