“If you fail to plan, you are planning to fail!” – Benjamin Franklin.
If you implemented your tax law action plan this past fall, you likely took one of these initiatives:
- Left your estate plan “as is” after review and completed your year-end action checklist,
- Designed and implemented an estate tax freeze, or
- Transferred your remaining exemptions.
The following is a comprehensive guide into the second approach: The Estate Tax Freeze. This is an effective money-saving option for you to incorporate into your 2021 estate plan.
This technique empowers you to:
- Cap your death tax/estate tax exposure at its current level,
- Maintain the level of flexibility that you enjoy,
- Maximize your current gift tax exemption, and
- Maintain cash flow.
The Estate Tax Freeze approach aims to look beyond short-term planning and prepare a long-term, enduring strategy. To know if this approach fits into your plan, you first must evaluate your current tax exposure.
Evaluating Your Current Tax Exposure
In our current climate, any major U.S. tax law changes are unlikely due to various federal government expenditures. This includes the COVID-19 Pandemic Plan, the Additional Economic Stimulus Package, etc.
Here Are 5 Steps WGA Recommends You Take to Evaluate Your Current Tax Exposure Effectively:
1 - Know your situation inside and out
What will your estate tax exposure be the estate tax exemption is $5.85 million or even $3.5 million?
Run the numbers at a 40% and even a 45% tax rate for an extra-safe approach.
2 – Run the "what-if" scenarios
Plan for alternatives and use flexible strategies.
This will help ensure adequate control of your assets and income for the rest of your life.
3 - Focus on extraordinary, low-interest environment techniques
Utilize the AFR (the applicable federal rate).
This is the rate the IRS uses to determine tax consequences for the most-advanced estate planning techniques.
4 – Adopt a “use it or lose it” mentality
What can you afford to give now versus in the next five years?
Under the current tax code, the estate and gift tax exemption is scheduled to be cut in half in December 2025. As opposed to later, giving now keeps all the appreciation on those gifted assets outside of your estate—and away from taxes.
5 – Focus on traditional estate planning
Use trustworthy, tried-and-true techniques.
Over the years, we have weathered many tax laws changes. When you work with your team at WGA, we focus on techniques proven to be effective.
If you have made it this far, schedule an appointment with your WGA team to go over your personal variables and potential changes. We will go over your personal limitations on lifetime giving, the federal income tax rate changes, and using itemized vs. standard deductions.
Stay tuned for an up-to-date report on which of the above-proposed tax law changes come into effect.