The current world situation has considerably reduced the country’s coffers. The government has needed to provide financial support to individuals and businesses. They may need to offer more. At some point, recuperating some of that money will become a priority. Changing tax laws to increase taxes collected may be considered necessary. It could affect any estate plan you made based on old rules.
What tax changes could affect estate planning?
The new administration had already signaled their intent to increase taxes on the wealthy when campaigning. These are some of the measures that financial experts consider they might take:
- Lowering the estate tax threshold: The previous government practically doubled the estate tax exemption from $5.49 million to $11 million in 2018. For 2021 it will be $11.7 million. The amount is due to drop back down in line with the 2018 level in 2026. However, the new administration may take action before this.
- Increasing the estate tax rate: Regardless of whether the estate tax threshold drops, the government may choose to increase the rate you pay on anything you own above the threshold.
There is no way of knowing for sure what changes this or any future government will make. The only sure way to reduce taxes is to reduce the value of your estate. It can take time to do so delaying may mean you miss the opportunity.
You can use your annual gift allowance to transfer money tax-free while still alive. The more years you have to do this, the more you can give away. Moving property into trusts is another option. Seek advice to understand how you can adjust your estate plan to protect against potential tax law changes.
