Advanced Planning for Estate Tax Avoidance
A provision in the Tax Cuts and Jobs Act (TCJA) doubled the federal estate tax exemption. In 2017, the individual estate tax exemption was $5.49 million. In 2021, the individual exemption is up to $11.7 million. However, the increase is temporary. In 2025, it is scheduled to revert back to his pre-TCJA level—and the reduction of the estate tax exemption’s reduction could come even sooner.
This raises an important question: Can I do anything to prepare my estate for future changes to the estate tax laws? The answer is ‘yes’―there are steps that you can take now to protect your financial interests. In this article, our San Diego estate planning attorney highlights some advanced planning strategies to help you and your family limit your estate tax exposure.
Plan Ahead: Advanced Strategies for Estate Tax Avoidance
As the law is currently written, the estate tax exemption will be cut in half in 2025. That being said, you should not assume that the current, more generous estate tax exemption will remain in place that long. The Biden Administration has announced its desire to change the law and reduce the exemption. What can you do now to protect your financial interests? There are a number of different options. Here are four advanced estate tax avoidance strategies that might be available to you and your family:
- Portability: An estate may be able to transfer the unused portion of a decedent’s individual estate tax exemption to a spouse. A married couple may have as much as $23.4 million in available estate tax exemptions under current law.
- Early Gifting: Early gifting is an effective strategy for many people who are concerned with potential estate tax exemption changes. Any gifts made now will be handled under the current tax laws. Notably, in November of 2019, the Internal Revenue Service (IRS) released official regulatory guidance confirming that the agency will not “clawback” lifetime gifts made under the current estate tax rules after they expire in 2025.
- Protected Spending (Tuition and Medical Expenses): Somewhat similar to early gifting, federal law allows unlimited tax-free gifting for certain types of expenses. The two most common types of protected spending are tuition and medical expenses. As an example, you could pay a grandchild’s college tuition directly without it counting against your estate tax exemption.
- Qualified Trusts: Finally, establishing a trust may be the best option to reduce estate tax liability. The type of trust you should use depends on your specific circumstances. You and your family may benefit from a spousal lifetime assets trusts (SLATs), a grantor-retained annuity trusts (GRATs), or other types of complex trusts.
Every Estate Plan is DIfferent: You Need a Strategy that Meets Your Needs
One of the most important things to know about estate planning is that everyone’s situation is unique. The ever-changing level of the estate tax exemption is just one of the many issues that must be considered when crafting a plan. An experienced San Diego, CA estate planning lawyer can review your situation and help you put together a plan that limits your estate tax exposure and best achieves your overall objectives.
Contact San Diego Estate Planning Attorney Today
At The Law Office of Kris Mukherji, our San Diego estate planning lawyer provides high quality service and personalized representation. If you have any questions about advanced planning for estate tax avoidance, we can help. Contact us today to set up a confidential consultation with an experienced San Diego attorney. We represent clients throughout San Diego County, including in Oceanside, Chula Vista, Carlsbad, El Cajon, Escondido, and San Marcos.