Wealth Strategy Value Proposition April 16, 2021
Clearly having a plan for how to organize your financial world to achieve your needs, goals and desires for you and your family is desirable and important. To accomplish that mission while encompassing your values and also addressing tax, gift, ownership and other issues are the basic tenets of Wealth Strategy.
As we sit today, in the Spring of 2021, we can see impeding tax law changes that create a real opportunity to develop a valuable Wealth Strategy. The current basic exclusion amount for determining the unified credit for offsetting against the estate tax and Generating Skipping Tax for 2021 is $11,700,000 per person. This amount will annually adjust upward for inflation under current law. However, the current law, absent any changes will sunset and expire on 12/31/2025. This means that a married couple would have a total exclusion amount of $23,700,000 that would shrink to about half of that amount in 2026. But the wild card is that the Biden administration is proposing a reduction in the exclusion amount either this year or next year to somewhere approaching $3 million per person. If that occurs then a $23,700,000 taxable estate for a married couple would have, instead of a zero federal estate tax, would be taxed at least 40% on $17.4 million or $6,960,000. Thinking about your beneficiaries (executor) having to write a check to money heaven (IRS) approaching $7 million is very hard to contemplate. Said another way, think about how long it would take your financial advisors to generate investment results of $7 million. This is part of the call to action to develop a Wealth Strategy that efficiently and effectively works for you and your family.
There are many more potential tax law changes that are proposed by the Biden administration and with congress may adopt that also add to this call to action to develop a Wealth Strategy, such as:
- Elimination of stepped-up cost basis at death
- Increase in long-term capital gains to 39.6% for gains over $1 million
- Increase the corporate tax rates
- Repeal of like-kind exchange rules for real estate
- Potential limitations on Family Limited Partnerships, family loans, GRATs, and philanthropy as well
The time to develop a savvy, sophisticated Wealth Strategy is now!