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Estate Planning Risks & Opportunities

Stocks are at all-time highs again, but this blog isn’t about investing.  The real bubble is outside of your portfolio, and it could mean millions in taxes for some folks.  We’re talking about the estate tax exemption.  

What’s the bubble in estate taxes?  Currently, the estate exemption amount is $11.7 million, so individuals don’t pay estate taxes on their net worth up to this level, and couples are estate tax exempt up to $23.4 million.  

The exemption has never been higher (see chart), but it’s scheduled to expire in 2025 and revert to its 2017 level of $5 million.  Further, the White House’s agenda seeks a lower exemption even sooner, and the current environment for taxing the wealthy appears quite accommodative.    

What Goes Up ...

After years of increasing complacency on the issue of estate taxes, we now see the probability of a significant increase in this tax liability on the horizon, one way or another.  In other words, one way or another, there’s a bubble in the estate exemption amount AND we have a sense for when it will pop.  Can you think of an opportunity more defined than this?  

The Counter Attack

We also see some savvy individuals making the time to engage their advisor and their estate attorney to review their current plans.  After all, there could be millions on the table.  Here’s how.

Consider a hypothetical wealthy couple seeking to pass their $25 million in net worth on to beneficiaries of their choice have a relatively small estate tax liability in 2021.  As we know, $23.4 million (or 92%) of their $25 million estate is exempt from the 40% estate tax.  If they were to pass in 2021, they would face a manageable estate tax bill of $800,000.

But if we fast forward to 2026, or if the current administration’s efforts make 2022 look like 2026, then this couple has a very different estate tax situation.  In this scenario, their exemption would be much lower, possibly only ~$12 million (or 48%) of their $25 million net worth.  The 40% estate tax would result in a bill of $5.2 million.  

Put another way, a thorough estate plan could mean, literally, about $5 million in value for a couple such is this one.  And the greatest potential value we see is with:

  • Younger couples
  • Wealthier couples
  • Business owners
  • Executives with significant equity compensation

For More...

Rather than dive into the strategies in detail, we’d invite you to join us for live webinar on the topic.