By now, you have heard that the estate tax exemption doubled from about $5 million per individual ($10 million or so per couple) in 2017 to $11.2 million per individual in 2018, and now $11.4 million in 2019 (or $22.8 million per couple).
Time to get rid of the all the plans you have to avoid estate taxes, right? Well, not exactly. Here is why:
- In some states (thankfully, not California), there remains an inheritance tax that has not changed. The state tax varies widely, in terms of exemption limits and tax rates, so it can have a huge impact on the estate.
- As we noted in previous blogs, the Tax Cuts and Jobs Act was passed in the House and Senate with absolutely no democratic support. In fact, both the Senate and House Democratic leaders gave closing arguments that included scathing remarks against the bill, calling it “brazen theft” and a “scam”. When Democrats regain control of the House and Senate, they are likely to take steps to dismantle the bill.
- The bill includes a provision for the estate tax limit to revert to 2017 rates for the 2026 tax year (with an adjustment for inflation).
- Estate tax law has fluctuated significantly over time. The estate tax exemption was $1.5 million in 2004, rose up to $3.5 million by 2009, in 2010 there was technically no estate tax, then it jumped to $5 million in 2011, and continued to gradually increased to $5.49 million in 2017. It doubled to $11.2 million in 2018, with a bump in 2019. And as we said, there is an expected drop in 2026 back to $5.49 million, adjusted for inflation. The only thing constant with estate tax exemption limits is change.
With that in mind, the best plan is to continue to minimize taxes for any estate over $5 million or so, and give as much as you can before 2026. If you live more than 7 or 8 years and you have more than $5 million in net worth, without a plan your family members will see a significant reduction in the estate when Uncle Sam has received his share. We recommend using life insurance as one of the tools to manage estate taxes here, and include some giving suggestions here.
Surprisingly, 64% of Americans do not even have a will. Even more surprising is the number of very wealthy people who have died without a will. You may have heard of Sonny Bono (Cher, an ex-wife, and a love child, all had to fight it out), Prince, Abraham Lincoln, Martin Luther King, Jr., Bob Marley, and billionaire Howard Hughes (to name a few). They would have had to pay significant estate taxes. On top of that, one source states that in some cases the estate was divided up in 6-year long probate cases, racking up legal bills to further reduce the estate.
As you prepare for life’s two certainties (death and taxes), your loved ones will thank you later. If you need help getting started, or want to discuss succession planning, feel free to reach out to the team at Axia Global. You can expect to have a confidential conversation to identify solutions tailored just for you or your affluent clients. It’s our goal to make a measurable difference in your financial life.
Note: The statements above should not be considered financial, legal or tax advice, but ideas for careful consideration with trusted advisers.
About Axia Global
J. Michael Roney, founder of Axia Global, has worked alongside the best financial and legal professionals in the field for decades. He has written a book on wealth preservation, and his calling is to craft profitable solutions for even the most complex wealth preservation and estate planning cases. Together, the team at Axia Global has nearly a century of combined experience in the financial services sector.
