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Begin planning now for possible estate tax increase

On Behalf of | Oct 5, 2021 | Estate Planning

Individuals and couples in Texas with large estates may want to think about ways to maximize their wealth while minimizing any estate taxes paid after their passing. The current federal estate tax exemption is set to expire in 2026, and few experts expect tax rates to go down.

Who should start planning ahead?

As the federal government looks for more ways to fund programs, anyone with wealth valued at more than $5 million should begin thinking about estate planning measures that would reduce the amount of money owed by their heirs after their passing. The current exemption stands at $11.7 million for singles and $23.4 million for married couples.

At this point, no one knows exactly what the federal government will do about these limits in the future. Nevertheless, a good strategy would encompass early planning. Several strategies are available to high-worth individuals, including:

• Maximizing your annual gift exclusion, which is set at $15,000 per giftee
• Donating to charity through required minimum IRA distributions or a donor-advised fund
• Using a grantor retained annuity trust, or GRAT, which is not considered part of your estate

Which tactic is right for you?

While using your annual gift exclusion can help ensure that your heirs receive your assets without being subject to estate tax, that tactic represents only part of the equation. GRATs are popular with individuals who have established startup companies. However, you must remain aware that those funds could revert to your general estate if you pass away.

The estate tax situation can be particularly complicated if you are divorced or in the process of going through a divorce. You may want your children to receive assets from your estate, especially if you have remarried. In such cases, you’ll need to determine which estate planning tools will meet your needs carefully.