“If you fail to plan, you are planning to fail!” – Benjamin Franklin.
If you implemented your tax law action plan this past fall, you would have followed one of the three following options:
- Left your estate plan as is and reviewed your EP and year-end action checklist
- Designed and implemented an estate freeze
- Transferred your remaining exemptions
The following article offers a comprehensive guide into the second approach: The Estate Tax Freeze. This is an effective option that you can incorporate when planning your estate plan in 2021.
Using this technique, you will have the ability to:
- Cap your death tax/estate tax exposure at its current level
- Maintain the level of flexibility you enjoy
- Maximize your current gift tax exemption
- Maintain cash flow
The goal of taking the Estate Tax Freeze approach is to look beyond short-term planning and into your long-term estate and financial planning strategy.
Evaluating Your Current Tax Exposure
In our current climate, any major United states tax law changes are unlikely due to various federal government expenditures. This includes the COVID-19 Pandemic Plan, 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
I.e., What would your estate tax exposure be if they reduce the estate tax exemption to $3.5 million or even $5.85 million?
Run the numbers at a 40 percent and even a 45 percent tax rate for an overly cautious approach.
2 – Run the "what-if" scenarios: Plan for alternatives and use flexible strategies*
This will help ensure that sure you retain adequate control of your assets and income for the rest of your life
3 - Focus on extraordinary low-interest environment techniques
This is where you use the AFR (the applicable federal rate). This is the rate by which the IRS determines the tax consequences of most estate planning advanced 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 set in motion to be cut in half in December of 2025. With that said, consider giving now, as opposed to later, where all future appreciation on gifted assets will be outside of your estate.
5 – Focus on traditional estate planning
Over the years, we have weathered many tax laws changes. When you work with your team at WGA, we focus on tried and true techniques and ones that have proven to be effective.
If you have made it this far, schedule an appointment with your team at WGA to go over your personal variables and how this may change. Here we will go over your personal limitations on lifetime giving, income tax rate changes, itemized and standard deductions).
Stay tuned for an up-to-date report on which of the above-proposed tax law changes come into effect.