Proposed Inheritance Tax Exemption Threshold Could Affect More Americans | Estate planning

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Under Donald Trump’s administration, the federal estate tax exemption was higher than it had been in years. As of 2021, the exemption is $ 11.7 million, meaning that a deceased person can leave up to $ 11.7 million in assets without paying federal inheritance or estate tax. donations.

DeAnna Alger, certified public accountant at Zinner & Co. in Beachwood, Barry Cohn, financial advisor at Stifel in Pepper Pike, and Mary Eileen Vitale, director at HW & Co. in Beachwood, said there are proposed changes. that would lower that threshold. to $ 3.5 million by 2022.

The exemption is already expected to be halved by 2026, but that process would be significantly accelerated if these laws were passed. Algiers said this lower threshold would affect more Americans than the previous threshold.

“Right now, with the current threshold of $ 11.7 million, there are very few Americans who have to deal with this because it is such a high threshold,” Algiers said. “Under the new law, this will have an impact on a larger percentage of the population. Especially with the modification of the elimination of the base increase, this threshold has been changed to $ 1 million. “

The other proposed change would be the removal of the cost mark-up for gains over $ 1 million on legacy assets. If passed, this rule would affect taxpayers whose assets are greatly appreciated and beneficiaries who inherit more than $ 1 million in assets with unrealized gains.

“If you have an asset that went from $ 10 to $ 100, the beneficiaries would currently assume a base cost of $ 100, the increase in value. But under the proposed laws, their cost base would revert to the $ 10 pre-death base, ”Cohn said. “It’s a huge difference; you assume all of that capital gain.

Vitale said those affected should start preparing by reassessing what they want to do with their estate.

“It’s about seeing what you want to do with your estate, reassess it, what assets you should be using to donate,” Vitale said. “Obviously you would want to donate some highly valued assets to, possibly, a charity if you wanted to. In some cases, some people may want to pay capital gains tax because one of the other things they want to do is raise the capital gains tax rate.

“Some people may actually accelerate a portion of their capital gains, depending on the nature of those assets. Everyone should look at their estate plan to see how it will affect them, as different people will be affected differently. If you are below these limits, you can still agree and not have to if you do not have significant asset appreciation. And that might not be a problem either. It just depends on the amount of unrealized capital gains you have.

Algiers said the best way to prepare for these changes would be to meet with your professional advisers, including your lawyers and CPAs.

“If you already have estate documents in place, it’s a good idea to review them and make sure that the intentions of the original estate plan would still come true if and when a change in tax law occurred,” said Alger. “For high net worth individuals who do not yet have an estate plan because the value of their assets did not come close to the $ 11.7 million exemption currently in effect, I think this would be a good time to start this process. “

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