Estate Tax Planning: It is Time To Do Some Work

Client Advisor – Shannon & Associates LLP - Kent, WA

If your estate as a married couple is worth more than $10 million dollars (or if you are single and your estate is worth more than $5 million), it is time to review your estate planning documents.

Under current federal estate tax laws, a married couple can die with $23.18 million dollars and not pay any federal estate taxes. That may change in 2021. As you know the United States has a large deficit and Congress will be looking for ways to raise revenue. With the change in the administration, it is more likely than not that the current estate exemptions will go down significantly. It is very likely that the federal estate and gift tax exemption will decrease from $23.18 M to $7.5M – $10M in 2021. 

If a married couple is worth $10M now, under the potential lower exemption amounts they could be looking at federal estate taxes of $2.25M plus Washington state inheritance taxes of $2.12M.

There are many estate planning tools that can help reduce or eliminate those estate taxes. 

Some ideas include a Spousal Lifetime Access Trust, this is a trust that is set up during your lifetime with your spouse as the beneficiary. At your spouse’s death, the remainder beneficiaries would step in. This trust basically uses the federal estate and gift exemption during your lifetime.

Family real estate businesses could establish family limited liability companies and could gift minority units to second or third generation family members.

Closely held business owners could establish trusts to own a portion of their business. It is important to watch out for company ownership transfers of companies that have benefited from PPP loans.

In addition to federal estate taxes, there are also Washington State inheritance taxes on estates over $2.193M. These estates are taxed at 10%-20%. The state of Washington does not have gift taxes and does not tax gifts made prior to death.

In conclusion, it is time to do some work on your estate plan. Please contact Laura Koenig, CPA at Shannon & Associates, LLP to get started.

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