By Derrek Klimek, CFP®, CPA
This is the first in a series of articles explaining the importance of exploring estate planning strategies in anticipation of expected tax changes that could be enacted under the Biden administration.
The proposed American Family Plan (AFP) legislation currently working its way through Congress underscores the importance of thorough and agile estate planning because it challenges several longstanding tax concepts and strategies: capital gains deserve a lower tax rate than wages and are an incentive to invest without discouraging sales; people should inherit assets without paying capital gains taxes based on unrealized gains; and taxes should be limited on income already taxed at another level, such as assets purchased with after-tax funds.
Most economists agree estate and capital gains taxes amount to a second or third layer of tax on the same income. The Tax Cuts and Jobs Act of 2017 (TCJA) addressed this situation by increasing estate, gift tax, and generation-skipping tax (GST) exemptions and effectively eliminating the federal estate tax for all but the ultra-wealthy. In 2021, anyone can give away up to $11.7 million during their lifetime or at death without being subject to federal gift or estate tax; amounts above the exemption are taxed at 40%. The TCJA is set to expire in 2025, unless new legislation is passed that changes the rules, such as AFP.
The AFP legislation proposes changes retroactive to Dec. 31, 2020 – years before the TCJA is set to expire – that would substantially impact many estate plans by:
You may want to consider a proactive change in course before an overhaul of the tax code is implemented. With expert guidance from your Rehmann advisor, you can explore:
Talk with your Rehmann advisor today for personalized service to help you navigate these uncertain times with short- and long-term strategies that ensure you have the resources you need today, while protecting your estate for future generations.
You can learn more about planning opportunities for your organization by joining Rehmann’s Empowered Planning series of webinars. These complimentary webinars and Q&A sessions are taking place throughout this year and provide expert insight and real-time examples of organizations and individuals who are seeking to build and maintain a strong financial foundation during these changing economic times. Learn more about the series, which is focused on planning ideas to help you move forward confidently, at Rehmann.com/webinars.
Look for next month’s article in our estate planning series: A good estate plan starts with thorough documentation.
Derrek Klimek develops creative strategies that help clients work toward meeting their financial goals, integrating asset management and retirement plan services with overall business and financial plans. He works with a cross-functional Rehmann team to proactively guide each client, considering tax law and efficiencies, estate planning, and accounting needs along the way.
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Kind Regards,
Randy Rupp, CPA
CEO