If you are in the process of long-term estate planning or updating an existing estate plan, the process for passing assets and accounts to your heirs is about to become much more difficult and expensive. Presently, each individual can pass $13.61 million in assets to beneficiaries and future generations without triggering any estate taxes. This is based upon changes implemented with the passage of the Tax Cuts and Jobs Act or TCJA in 2017. However, the increased estate tax deduction amounts are scheduled to return to the original 2017 levels (adjusted for inflation) upon the sunset of the TCJA at the end of 2025, or about $5.7 million.
The good news for those planning for the transition of generational wealth is this: there are many legal strategies for an individual or married couple to reduce the potential impact and risk of the sunset of TCJA provisions.
Expert estate planning is required to pass assets and accounts to your heirs and beneficiaries in the shortest time and with minimal or no tax consequences.
Anyone who owns a home in California and most major metropolitan areas throughout the United States should have a trust. The cost of a trust or estate plan is actually relatively low, especially when you consider it is often less than 10% of the cost of taking a single-family home through probate upon your passing (not to mention the rest of your estate).
Without a trust, your home must pass through probate court before it is passed on to your heirs and beneficiaries. In almost every case, this process will take more than a year, and the cost of probate is based upon the appraised value of all of your assets – including your home. It is not based on your home’s equity but on the total appraised value. For example, the median value of a house in San Diego is presently $999,000, resulting in statutory fees and probate costs of more than $46,000 for the house alone. (Note: the probate process in this example will take over one year).
With the sunset of the TCJA, the process for passing assets and accounts to your heirs is about to become much more challenging, and, potentially expensive. An experienced estate planning and tax attorney will begin with a thorough review of your existing financial portfolio and tax situation. The goal is usually to develop a plan that protects your home, assets, bank and investment accounts, while ensuring your wishes are followed to the letter upon your passing.
When working with a married couple, assets are preserved upon the first spouse’s passing in the most effective manner possible, usually through a revocable trust or series of revocable and irrevocable trusts. This provides for the surviving spouse’s needs until their passing while preserving and protecting the couple’s assets and minimizing tax exposures. When the surviving spouse passes, or, in the event of a single individual, the trust’s beneficiaries gain access to the ownership of the home, as well as the accounts and assets you’ve provided for under the directions of the trust(s) and estate plan.
Passing assets and accounts to your heirs and beneficiaries quickly and cost-effectively while minimizing any associated taxable event (or eliminating it altogether) is not only a loving thing to do but also a sound financial strategy. However, discussing the potential impact of the sunset of TCJA provisions on your financial planning with an experienced estate planning and tax attorney is imperative.
Ask about transactional planning and the potential benefits of accelerating or decelerating distributions and gifting. Tools such as a Grantor Retained Annuity Trust (GRAT), a Family Limited Partnership (FLP), a Family Limited Liability Company (FLLC), or a Spousal Lifetime Access Trust (SLAT) might help offset these risks while protecting and preserving your assets and minimizing associated tax exposures.
Estate planning protects your wishes, provides for your heirs and beneficiaries, allows them to access assets and funds in an immediate time frame, and reduces or eliminates the impact of taxation.
Why is the process for passing assets and accounts to your heirs about to become potentially much more difficult? How might the sunset of TCJA provisions impact your estate planning and gifting strategies?
We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470. Protect your wishes, while planning for the potential sunset of TCJA provisions and providing for your loved ones and the causes which are important to you.
