Congress is exploring a number of tax code adjustments, including adjusting estate taxes, to help produce income to pay for President Biden's Build Back Better Plan.
With an effective date of January 1, 2022, one of the ideas would cut the estate tax exemption to somewhere between $3.5 and $5 million. Another proposal would change the way grantor trusts are taxed, particularly how life insurance held in a trust is taxed. 1,2
Many concepts are being considered at this time, but nothing is set in stone. Tax rates for corporations, individuals, and capital gains taxes are all up for discussion.
For the time being, the federal estate tax exemption stays at $11.7 million for 2021, with a married couple's joint exemption of $23.4 million for that year. 3
However, it wouldn't be surprising if the estate tax law was altered as part of the larger strategy. In 2019, there were 2,570 taxable estate-tax returns filed, with a total debt of $13.2 billion. Over the next five years, lowering the estate tax exemption to $5 million would earn an estimated $52.3 billion. 1
The best strategy is to wait and see, as difficult as it may be. Any estate adjustments based on present conversations would be hasty.
However, if you're concerned about these changes as Congress works on them, please call us. As tax laws change, estate plans may need to be adjusted, and it's wise to be prepared for a variety of new rules coming out of Washington.
1. CNBC.com, September 29, 2021
This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and financial professionals before modifying your estate tax strategy.
Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
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