The Estate & Gift Tax Exclusion

Few things in life are sure, and taxes are one of them. Even when you pass away, the government has one last chance for a tax payday — the federal estate tax. Thankfully, there is an exemption that protects most estates from feeling the pain. The exemption amount is currently $11.7 million per individual, and $23.4 million for married couples. This means that an estate will pass free from federal estate tax if below these thresholds. So, for most people it’s nothing to worry about — right? In 2002, the exemption was only $1 million. President Biden is proposing a decrease in the exemption to $3.5 million. This is a bit more concerning since the inclusion of homes, personal assets, business ownership, and retirement accounts can bring people closer than they would expect to the threshold. Everything above this would be taxed up to a maximum of 40%. Here are a few strategies to consider for reducing your future estate tax burden:

• Gift up to the annual gift tax exclusion amount ($15,000 per person)
  • This removes not only $15,000 from your estate immediately, but also removes the future growth, too 

• Utilize your $11.7 million exclusion amount by making large gifts above the proposed $3.5 million exemption
  • If Biden’s proposal is finalized, the IRS will not claw back gifts above this new threshold

Blue Ocean Strategy

By W. Chan Kim & Renée Mauborgne