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WASHINGTON — The new tax plan passed at the end of last year means some changes to the federal estate tax law, and the those changes could be an “immense help to taxpayers,” said Attorney Mike Collins with the Collins Firm.
Collins said the most significant thing that was done was doubling the personal exemption for each individual to $11.2 million.
“Which means that if someone dies and you add up the value of everything they own, unless that value exceeds $11.2 million, they’re not going to have to pay any federal estate tax,” Collins said.
While some people may think they will never have $11 million in worth, they shouldn’t ignore the new federal estate tax measures, Collins said. He said many people assume estate tax is the only reason to do estate planning in the first place, but added “tax planning is just one element of a person’s estate plan – and it’s not the most important element.”
Also, the $11 million exemption is a temporary measure under the new law. The provision will go through the end of 2025, unless Congress extends it.
“At this point, that’s eight years away. It may seem like the end of time, but really it’s amazing how quickly eight years fly by,” he said, adding that you can’t count on the exemption to stay that high.
While estate planning is in a state of flux under the new law, it still allows for the development of a flexible plan where clients can guard against potential changes and also achieve capital gains for the future, Collins said. Establishing a flexible tax plan under the new estate tax laws is crucial, he added.
“From the client’s perspective, you want to remember that when you sit down with your adviser, make sure he or she is still focused on doing tax planning for you, and make sure they are going to prepare a flexible tax plan that addresses both estate tax challenges and capital gains tax opportunities.”
One additional opportunity under the new tax law is one for married couples called “portability.” Under this option, an estate that’s less than $11.2 million voluntarily files a federal estate tax return. Then the surviving spouse can take the amount not used out of $11.2 million and carry it over to the estate. Then, when the other spouse dies, that estate will not only have that exemption, but the remainder not used when the first spouse died.
Then the surviving family will get the full value of each parents’ exemption. While there can be a hefty price when voluntarily filing an estate tax return even when it’s not required, “it could have great economic advantage, tax advantage, savings advantage for the family down the road,” Collins said.