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AL Estate Planning & Elder Law Blog

Tuesday, June 1, 2021

Estate Planning Tips to Consider When You Near the Proposed Tax Limits

Have you heard of the saying that the only thing certain in life is death and taxes? Did you know that not planning for death, or inheritance taxes, may leave your estate open to significant taxes, as high as forty percent of your estate? Let us review some estate planning tips to consider when you near the proposed tax limits.

Starting with a bit of good news, Alabama does not have an estate or death tax. This means that upon your passing, your estate will be subject to zero state estate tax. Your estate, however, may still be subject to federal estate tax. The current estate tax exemptions in the United States are $11.7 million for a single person and $23.4 million for a married couple. These exemptions are set to change in the year 2026 and are projected to decrease significantly and there is proposed legislation that may significantly decrease estate tax exemptions as soon as the end of 2021. Although it is not possible to predict to what degree the federal tax exemptions will decrease, if you have a high net worth estate, now may be the time to conduct estate planning to protect your assets.

With the current federal gift tax exemption at $15,000 per person, you are able to make a $15,000 annual gift to a family member with no tax liability. For example, if you have ten grandchildren, you can gift them each $15,000 per year for a total of $150,000 per year tax free.

Another way you can decrease the taxable value of your estate may be through charitable giving. There are a number of trust structures, such as the charitable split interest trust, where charitable distributions are made throughout the term of the trust with the remainder of the trust going to a named beneficiary. The named beneficiary can be a family member and does not need to be a charitable organization. If you are interested in remaining involved with your charitable giving, you can also create a donor advised trust, where the set amount you move into the trust for charitable giving will automatically qualify for a tax deduction, but the funds will remain in the trust, until you distribute them, according to your wishes.

If you have a life insurance policy with a high death benefit, you can create an irrevocable life insurance trust. Upon your death, the proceeds of the insurance policy will be directly paid to the beneficiary and the death benefits value will not be included in your estate value. This must be created more than three years prior to your death or the trust will be held invalid. 

Our office can help you assess your financial picture and conduct estate planning to protect your assets from unnecessary taxes, thereby protecting your family. Contact us today to schedule an appointment

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