Listen to Lawrence…Estate Tax Question Answered

October 13, 2020
Dear clients and friends,
Here’s the answer to one of your estate tax questions:
Question for Lawrence
Hi Lawrence,
I have an estate worth $7 million. I understand that I have no exposure to estate taxes. Is this true?
My Response
I wish I could say that this is true, but it is not. What is true is that the federal exemption from estate taxes is currently $11.58 million, so YES, if you died today, you would not pay any FEDERAL ESTATE TAX. However, the current exemption is scheduled to change on January 1, 2026.
Here is what happened: When President Trump came into office, the federal estate tax exemption was in the $5 million range, increasing annually with inflation. The Trump tax law changed this to the $11 million range, again increasing annually with inflation to its current $11.58 million. This Trump tax law was only good for 10 years or until January 1, 2026, at which point it reverts back to the old law, which will be about a $6 million exemption. Note that the tax law was not permanent because a tax law that raises the deficit needed 60 Senators for approval, which it did not have. Long story short, in 2026 your estate may be above $6 million and therefore subject to federal estate tax.
If you are married, you have no issues here because each spouse gets about $6 million in exemptions or about $12 million combined. If you are not married, then you may wish to start reducing your estate by gifting assets to trusts or otherwise.  You may also purchase life insurance to cover the tax, as the premiums may be much less than the actual tax. Note that if there is a federal tax here, it will be approximately 40% of the excess over the exemption.
I will continue this topic later this week, discussing how New York wants a piece of the pie as well.
I hope this helps! Please forward this information to your friends and relatives.
As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!