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Horizon Elder Law & Estate Planning Blog

Friday, July 30, 2021

Saying Goodbye to The Current Gift and Estate Tax Exemption?

It has never been more important to take advantage of the current gift and estate tax exemptions. Currently, Congress seems poised to work on legislation that would increase the tax rate and decrease the dollar amount for the estate tax.

A recent plan unveiled by Bernie Sanders proposes to raise estate tax rates from the current 45% to 65%. Additionally, it would reduce the overall death benefit an individual could receive from $11.7 million to $3.5 million. As California estate planning attorneys, we understand the importance of taking advantage of specific programs while they are available. The current exemption could be set to disappear on January 1, 2022, if it gets passed into law.

Taking Advantage of The Current Situation

If Congress acts on reducing the current exemption, your heirs may find themselves signing over significantly more money to the government in the form of taxes. With a single party in control, it increases the likelihood of new legislation. However, there are currently many other options that may be possible for you to utilize the existing exemption.

There has never been a better time to work with the estate and gift tax exemption. The current exemption is up from 2020 to $11.58 million. With the present amounts, it means that an individual could leave up to $11.7 million without the requirement of paying a federal estate or gift tax. Married couples could receive up to $23.4 million.

However, the $23.4 million for couples is not automatic. There is an unlimited deduction that applies to a surviving spouse, but there must be a move called portability for a late spouse to use the unused exemption. If you don’t understand what portability is or how to elect this option, you could be hit with a surprising estate tax bill from Uncle Sam.

Additionally, many states have additional estate or inheritance taxes, so ensuring that you know which rules apply to your assets is extremely important.

The 2021 Estate Tax Rates

As with many taxes, the estate tax is done on a sliding scale. This means that not all taxes hit the highest rate levels. For example, for amounts in an estate from $0-10,000, there is a $0 base tax, and taxes are only levied on 18%. As the amounts increase, the base rate and the percentage increase.

At $100,001-150,000, the base rate is $23,800 and 30% of the taxable amount. The maximum amount is for taxable amounts of $1,000,000 and above. These include a base rate of $345,800 and 40% on the taxable amount.

Preparing an Estate for The Future

While nobody can completely predict the future of gift and estate tax exemptions, it is crucial to work with somebody who has their finger on the pulse of upcoming state and federal laws. Additionally, working with a trusted advisor that understands the history of taxes and the best strategies to keep you from paying too much can help save an estate and leave more to heirs. If you have been considering the best way to handle your finances in the current political climate, call us today and see the difference we can make.


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