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Taking advantage of the favorable estate tax climate

| Mar 6, 2020 | Estate Planning |

For people in Philadelphia with significant wealth, the rising estate tax exemption that entered into law with the 2017 tax reform may come as a welcome relief. Many people want to plan their estate to pass as much of their property as possible to their beneficiaries and future generations without losing significant amounts to estate taxation. As of 2020, the individual exemption from estate taxes has reached $11.58 million with increases indexed to inflation, and married couples have double that amount. The exemption was more than doubled from approximately $5 million per person with the implementation of the Tax Cuts and Jobs Act in 2018.

However, the increased estate tax exemption is not necessarily permanent. The increased exemption is slated to sunset in 2025, unless it is explicitly renewed by Congress. If it is not renewed, the exemption would return to its previous $5 million level, with increases indexed to inflation. However, there are ways that people can begin to take advantage of the increased exemption that can provide continued asset protection even in the case the sunset provision goes into effect. Lifetime gifts and irrevocable trusts are one way to do so; gifts made during a person’s lifetime count against the exemption at the current amount, while irrevocable trusts permanently remove property from an estate.

In other cases, people may want to make gifts now of assets that they expect to grow in the future, such as shares in a business or a stake in a real estate development. Only the current value counts against the exemption, while the value at the time of the person’s death may be much greater.

There are a number of strategies that people may pursue to protect their assets and pass them on. An estate planning attorney may help people to develop a plan for the future.