Implemented estate planning strategies?
There is a good chance that income and estate tax reforms will be proposed with the Democrats holding marginal control of Congress and the Senate. It is difficult for taxpayers to decide on the right strategy, regardless of whether the Democrats have enough votes to make major changes.
We do know that the estate tax exemption for $11.8 million currently under the current administration or Congress will likely be reduced by $5.5 million starting January 1, 2026. This is less than four years away. People with substantial wealth are more likely to be subject to the 40% estate tax rate on estates exceeding $11.8 million. This could potentially mean that spouses will pay $23.6 million. It is worth considering tax and estate planning strategies to secure these high exemptions.
To decide to implement estate planning strategies, the first hurdle must be to allow gift-taxable gifts exceeding $5.5 million.
If this threshold is not met, gifts below $5.5million will not be exempted from estate tax. If you give $5.5 million in gifts now, it will be exempt from gift tax. However, to become tax-free, the $11.8 million gift and estate tax exemption will be applied to the gift. This will leave a $6.3 million exemption. Problem is, if the exemption drops to $5.5million, then the $6.3 million remaining exemption will vanish because you have already used the $5.5million exemption, and there will be no additional exemption for future use due to the reduction to $5.5million.
If you can give the substantial amounts necessary to benefit from the $11.8 million exemption, there are many options. Let’s take, for example, that you and your spouse have $25 million. One of you could gift $11.8 million of your spouse’s separate property to take advantage of the high exemption.
This gift gives the spouse who made it no exemption. However, the spouse giving the gift will continue to have the full exemption of $11.8million or $5.5 million if January 1, 2026, comes around. This technique will allow you to at least take advantage of the $11.8 million exemption for one spouse, provided that the entire gift is attributed solely to one spouse.
You and your spouse could make a gift of up to $20 million if you have at least $40 million.
Gifting can be made more appealing by using trusts. Trusts will allow you, your spouse, to keep control of the gift’s assets. The use of limited liability companies, which can be used to increase the impact of gifting, can help you retain more control over gifted assets.
The Internal Revenue Code Section 1014, basis adjustment provisions, is being considered. This section of the code states that assets such as stocks, bonds, and real estate receive an adjusted tax basis equaling the value of the deceased person as of the date of their death.
If stock XYZ was purchased at $100 per share but is worth $1,000 per share w your heirs will inherit the stock upon your death, on the $1,000 tax basis. The stock’s value as it stands on your death date, which allows you to avoid capital gains tax on $900 capital gains.
There has been Although some talk of changing this, I believe it will not be implemented. It is so easy to reset people’s base by determining their basis at death that it would cause a lot of outrage not only from taxpayers every day but also from tax preparers such as certified public accountants, enrolled agents, and other tax return preparers. The difficulty in determining the tax basis of property that has been held for ten, twenty, or more years makes it difficult to determine the tax basis. It would also make things more complicated.
Therefore I, for one, do not believe that the tax rule will be altered.
If you have assets that are likely to appreciate due to historically low-interest rates, you may sell them to a trust to benefit your children. The trust will pay you a note in return for the assets transferred. The sale can be structured so that capital gains taxes are not incurred. Additionally, the note returned can only have a minimum interest rate of about one-half percent. 0.50%).
If the transferred assets yield a greater than 0.50% return, the excess return is granted to the Children to their trust. This reduces the growth of your estate that would otherwise occur if you retained the appreciating assets. You may have substantial assets that you would like to gift to someone else. This means you will give up your claim on the principal, dividends, and interest. Now is the right time to start some major gifting strategies.