In last month’s article, we highlighted the proposed changes to the estate tax laws. The tax proposal also included raising individual income tax and capital gain rates, eliminating backdoor Roth IRA or mega Roth accounts, adding new required minimum distributions on IRAs and 401(k) plan accounts with high balances (i.e. $10M+), and more.
Many wealthy individuals jumped on the chance to lock in the high federal estate/gift exemption by making large gifts before year-end. Additionally, many formed or funded grantor trusts considering the potential for these opportunities to disappear upon the signing of the bill, or at least by year-end. Gifting has the added benefit of removing future appreciation from further compounding your estate situation.
However, the October 28 version of the House bill eliminated all these provisions. So, can we breathe a sigh of relief that the coast is clear? Unfortunately, we can’t be so sure. A November 3 manager’s amendment to the Build Back Better Act bill has already added back in the above retirement plan provisions, among other things. Will other provisions such as the estate tax provisions get added back? Who knows? If not, will they be taken up separately next year? Maybe. Either way, the high estate exemption sunsets on December 31, 2025 without any legislative action. The clock is ticking on the chance to take advantage of the favorable estate tax rules.
We encourage you to keep up the momentum on addressing your estate plan or to get started soon if you haven’t. Whether the federal or state estate tax applies to you or not, there are many nontax benefits to reviewing and shoring up your estate plan. So many times, we see the will or revocable living trust is just right, but the make-up of the assets and beneficiary designations foils it. Or maybe the financials are set up just right, but the structure of the document foils it. It is also possible that neither are set up right or they get out of alignment as life happens and family situations, finances, goals, or laws change that impact it working the way you intend. It is certainly worth looking.
If you need further guidance or have any questions on this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.