Estate planning is not a “one and done” endeavor. It should be viewed as an ongoing process, because your initial estate plan will be based on your life at that time. The only constant is change, and life events will invariably trigger the need for estate plan updates.

In addition to the provisions that are obviously necessary, you should review your estate plan with your attorney periodically to address events that are out of your control. As a layperson, you may not follow legislative measures that can impact your plan, but we do it for you.

The pandemic has forced people to put many things on hold, and this is understandable. However, now that vaccinations are readily available and the weather is getting warm, the environment is as safe as it has been in a long time.

There are some specific legislative changes on the table right now that are attention-getting to say the least, so action is required sooner rather than later.

Federal Estate Tax and the For the 99.5% Act

The federal estate tax can significantly reduce the legacy that you will be passed along to your loved ones if you are exposed because it carries a 40 percent top rate. Most people do not have to pay the tax, because there is a credit or exclusion is quite high at the present time.

You can transfer $11.7 million before the estate tax would be levied on the remainder. This is the figure for 2021, and it has never been higher. The record high exclusion was installed via a provision in the Tax Cuts and Jobs Act that was enacted at the end of 2017.

There is also a gift tax that is unified with the estate tax, and the exclusion is a unified exclusion. You can potentially use the entirety of the $11.7 million exclusion to give tax-free gifts while you are living. It can also be used to fund certain types of irrevocable trusts.

Senator Bernie Sanders from our state has introduced the For the 99.5 Percent Act, and this piece of legislation would significantly change the estate and gift tax parameters. It calls for a reduction in the exclusion down to $3.5 million and an increase in the rate to 45 percent for estates valued at $10 million or less. The rate would increase for larger estates with a 65 percent max rate for estates the exceed $1 billion in value.

It would also change the relationship between the gift tax and the estate tax. The limit on tax-free lifetime gifts would go down to just $1 million.

Even if these changes are not implemented, the estate tax exclusion is going to be significantly reduced. The provision contained within the Tax Cuts and Jobs Act that established the record high exclusion is going to sunset at the end of 2025.

In 2026, the exclusion will go back to the 2017 level of $5.49 million if there are no changes in the meantime.

Clearly, there is a window of opportunity for large gift giving at the present time, and this is something you should discuss with an attorney from our firm as soon as possible.

Sensible Taxation and Equity Promotion Act

There us another proposed piece of legislation that would have a significant impact on many estate plans. The Sensible Taxation and Equity Promotion Act (STEP Act) would reform the way capital gains taxes are treated.

Under this measure, the stepped-up basis would be eliminated for large transfers. This is the provision that gives inheritors the ability to inherit appreciated assets free of capital gains taxes. It would remain in effect for transfers that do not exceed $1 million.

An increase in the long-term capital gains tax rate for the highest income earners has been proposed as well. It currently stands at 20 percent, and Democrats would like to increase it to 39.6 percent.

Securing a Strong Retirement Act

We have recently shared information about the Securing a Strong Retirement Act or SECURE Act 2.0. It would change some of the individual retirement account guidelines, and this is another subject you should discuss with your attorney.

Schedule an Estate Plan Review Today!

As you can see, there are some very good reasons to review existing estate plan with a licensed attorney. If you are ready to do just that, you can schedule a consultation appointment at our Essex Junction, Vermont estate planning office if you call us at 802-879-7133.

There is also a contact form on this site you can use to send us a message, and if you reach out electronically, you will receive a prompt response.