That title is a bit of a misstatement. The death tax (aka estate tax) hasn’t gone anywhere; it just doesn’t affect you. Unfortunately, that’s probably going to change soon. Let’s explore what we could be facing in the future.
What is the Death Tax?
The “death tax” is a pejorative nickname for the estate, gift and generation skipping transfer tax. Basically, it’s the tax that is collected from someone’s estate when they die. The tax is calculated based on the value of the decedent’s estate and can include just about any asset they own upon death. If you think about all the assets someone can accumulate in a lifetime, it’s not hard to envision a hefty tax bill at the end of life.
While this type of tax may be a great method of redistribution of wealth. It can also be a huge burden on the family of a decedent. Thus, many preplanners actively work to set up their estate plan to avoid the death tax.
Why Does it Matter?
For the last decade or so, the death tax has not been much of a factor for most individuals. This is because it has not applied to most Americans for a number of years. Since 2011, the death tax has only applied to estates that gave over five million dollars’ worth of assets—those below are exempt. However, in 2018, that amount changed to over eleven million dollars, an amount that many Americans don’t even come close to. Built into that 2018 change in the law is a time limit. In the Tax Cuts and Jobs Act (TCJA), Congress compromised to allow the death tax exemption to be as high as it is today with the caveat that it automatically revert back down to five million in 2025.
But here’s the thing, just because it’s going back down to five million, doesn’t mean it won’t go lower. In fact, hitting the sunset date in 2025 means that the death tax exemption is on the chopping block. Given the recent economic turmoil and previous debates surrounding the TCJA, the death tax exemption could be lowered significantly. There is a possibility that the death tax could apply to estates valued in the hundreds of thousands (like it did in the early 2000s). Considering that the death tax takes into account the value of all of your asserts at death, many Americans may be affected by this tax that can range from 40% to 50% of a person’s estate.
Luckily, there are ways that you can plan ahead now to avoid the future depletion of your family’s inheritance. If you want to learn how to plan ahead to avoid taxes or protect assets, give the experienced attorneys at McIntyre Elder Law a call at (704) -259-7040 or visit our website at www.mcelerlaw.com.
Brenton S. Begley
Elder Law Attorney
McIntyre Elder Law
“We help seniors maintain their lifestyle and preserve their legacies.”