Wealth Transfer Planning and the Estate Tax Exemption

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Josh and Jay welcome Will Steih back to the studio for a conversation about Wealth Transfer Planning, an important issue with the recently increased Estate Tax Exemption amount potentially in play with a new administration coming into power. The Estate Tax Exemption, commonly called the “Death Tax”, has an eventful history with the role it plays as a political issue. On a practical note, business owners and successful professionals should be aware of current exemption amounts, and how recent history has proven that those amounts can change with the “stroke of a pen”. No one can predict the future of the Estate Tax Exemption, but proper planning can help clients pass the “Pillow Test” and sleep better knowing they have addressed this vital component of transferring their wealth to the next generation or to their favorite charity or organization.  

Key Takeaways:

 If recent history is any indicator of potential future changes, the Estate Tax Exemption has experienced significant swings. The amount was only $600,000 not too many years ago, and most recently, doubled from approximately $5.5 Million to $11.18 Million (it adjusts every year with inflation) under the Tax Cuts & Jobs Act.

– The current exemption is set to sunset in December 2025, but changes in political leadership could impact that timeline.

– The current tax rate for assets above the exemption amount is 40%. This rate has been 55% in the past.

– We discuss what defines an “Estate”, including the differences in Qualified and Non-Qualified Assets.

 A 401k or IRA is a common Qualified Asset included in someone’s estate. The “stretch rule” for inherited IRAs has changed, now requiring beneficiaries to “drain” the account over a 10 year period through distributions. This process can add significant income taxes to a beneficiary’s situation, but the reality is that many inherited IRAs are spent quicker than that.

 There is often an emotional component to Wealth Transfer Planning, something that having professional advice can help navigate.

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