Tax laws are constantly changing, and sometimes, these changes can hold a significant impact on the way your estate plan is -or should be- set up. That is why it is important to employ an attorney who is up-to-date and knowledgeable on all current legislation. As an estate planning firm, we take it upon ourselves to inform our clients of any and all changes that may affect the design of their estate plan and provide them with options customized to their unique situation.

There is currently a draft bill proposed by the House Ways and Means Committee that would (1) drastically lower the estate tax exemption amount from $11.7 million per person to approximately $6 million per person. For married couples, this amount would be changing from $23.4 million per couple to roughly $12 million per couple. This bill would also (2) impose a 3% tax on estates that generate an annual income exceeding $100,000.

So, what does this mean?

  1. This estate tax exclusion change means that if you are a married couple and your estate is worth more than roughly $12 million at the time of your death, the amount of your estate in excess of $12 million would be subject to 40% taxation. An ‘estate tax’ is a taxation that is taken out of your estate before it is distributed to your beneficiaries. Therefore, if your estate falls under the $12 million exclusion amount, you will not be subject to the taxation. For a single person, this amount would be roughly $6 million.
  2. There are also tax rate changes taking effect to estates after death that generate an annual income. Your estate can still generate income after your passing through assets such as retirement and/or investment accounts that are continually growing. Within the top tax rates, it is proposed to see an increase from 37% to 39.6% (up 2.6%) for estates with taxable incomes over $12,500. For estates with an annual income of $100,000 or more, there is an expected 3% surcharge. 

Will you be affected?

It is important to note that only those who expect their estate to be worth over $6 million individually -or $12 million as a married couple- will be affected by these changes. If you do foresee your estate falling into this category, there are various estate planning strategies you can take advantage of prior to January 1, 2022.

The proper strategy for you can only be determined by a thorough conversation with your attorney. Since this proposed bill is scheduled to take effect January 1, 2022, it is important to take action now if you think your estate will be impacted. To discuss the potential impact and talk through your options, we recommend giving our office a call at (719) 428-4495 or reaching out via email to contact@mlapg.com