Potential changes to the estate tax mean that if you have a large estate, it’s essential to start planning now.
Got a question about the mechanics of investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write me at [email protected]. Since the current estate-tax exemption is set to lower in 2026, you previously quoted an adviser who suggested that people with around $10 million might want to give money away while they were living to reduce the size of their estate to below what the new limits would be.
Very few families have faced federal estate taxes in the last few years: The IRS logged only 1,275 taxable-estate returns in 2020. But more families would have to consider the impact of estate taxes if the exemption amount went back down to something like $6.5 million per individual — even with new, favorable IRS portability rules allowing spouses to pass along their part of the exemption. In addition, 17 states and the District of Columbia have their own estate-tax and inheritance thresholds.
Although you could take a wait-and-see approach, the closer we get to the end of 2025, the busier estate lawyers and financial planners are going to get. If you have something like $10 million and you decide that giving away $3.5 is the best tax scenario for your estate, you probably aren’t going to just write a check. You’ll be looking for trust structures and other advanced estate-planning techniques that involve lawyers and accountants.
There are a couple of ways to give away a significant amount of money to lower the value of your estate. The reason people hesitate is because most of those options are irrevocable — meaning you can’t change your mind later on.So, D.S., one of the issues you bring up is that you use up your exemption by giving away money. Say you have $10 million like the example above and you pass away after the exemption goes down. You’d owe federal estate tax on the $3.5 million difference.
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