Your Net Worth In Focus – Estate Planning Ideas and Strategies

Today’s topic covers estate planning strategies that may help mitigate your tax burden in the future. There are three estate planning strategies strategies our presenters focus on. We advise you to discuss them with your estate planning advisors advisors to learn how they may benefit your net worth for year-end planning.

Estate Planning Strategies: Insights and Advice

Welcome to Your Net Worth and Focus, a video series committed to answering personal financial planning questions. As seasoned service professionals, we provide a full range of accounting, tax, and advisory services to closely help businesses and individuals. As members of KatzAbosch’s Personal Financial Service Group, we specialize in protecting and maximizing individuals’ financial legacies.

Rebecca Hammond: Hi everyone, I’m Rebecca Hammond, and today we’re going to discuss some estate planning ideas you should consider because it’s never too early to think about estate planning strategies that may help mitigate the tax burden in the future.

Rebecca Hammond: Lauren, what’s the first thing we should consider?

Lauren: The first estate planning strategy you should be aware of and prioritize is to review the estate plan and planning documents. This action seems somewhat obvious, but all too often, these items are left for years and never looked at after being created. It is recommended that you should review these items at least every three to five years or if there are tax changes that may impact your personal state at any time. Items to review include proper beneficiary designations on retirement accounts and insurance contracts, wills, powers of attorney, health care directives, and revocable trusts. Additionally, existing trusts should be reviewed to determine if changes are needed because of recent tax law changes.

Lauren: Regarding the tax laws, there are some key items you should consider this year during your review process. The first tax item to look at is your annual gift tax exclusion. Each year, the IRS sets the annual gift tax exclusion amount, which allows the taxpayer to give a certain amount per recipient tax-free without using up any of his or her lifetime gift and estate tax exemption. For 2022, the annual exclusion amount is $16,000 per person or $32,000 for a married couple filing jointly. These gifts do not incur gift taxes nor do they utilize a lifetime exemption. It’s almost like a freebie. If you give this amount each year, you can transfer a substantial amount of assets out of your estate.

Lauren: For 2022, there’s an increase in the lifetime exclusion amount for gifts and estates. It now stands at $12.06 million per individual. One thing to keep in mind, though, is that this exclusion will sunset at the end of 2025, meaning the lifetime exclusion will revert back to the $5.49 million, adjusted for inflation, which is expected to be around $6.2 million. Due to this, it may be beneficial to start working on your estate plan now so that you can take advantage of the increased exemption.

Lauren: If a spouse dies without fully utilizing either the federal and state exemption, they can elect portability. This transfers the unused exemption to the surviving spouse. To make this election, federal and state tax returns must be filed, typically this is done nine months from the date of death without the filing of an extension. However, the IRS did just issue guidance which allows the federal return to be filed within five years of the date of death to elect portability.

Lauren: While much attention is focused on the federal estate tax, certain residents need to know that many states have estate or inheritance taxes as well. A number of states apply different tax rates or exemption amounts. A taxpayer may have net worth comfortably below the $12 million sixty thousand exemption amount for federal estate taxes but may be well above the exemption amount for their particular state. It’s important to consult with your advisors on specific state law and potential options to mitigate estate or inheritance taxes.

Lauren: And because estate planning generally involves the transfer of wealth during life or at death to beneficiaries in a manner that seeks to minimize taxes, any change in the tax law can be consequential. But while tax considerations are important, they’re far from the only factor in a well-designed, flexible estate plan. To ensure that you have an estate plan that is as flexible as you need it to be, it’s important to have a conversation with your financial advisor after consulting with your tax professional and personal lawyer so they can all work in tandem.

Lauren: What might this involve? For one thing, a number of foundational questions will be asked. Some of the things they’ll ask are: Has your family tree changed? What is your net worth now? What kind of assets do you have? Who are you hoping to take care of in the future? The answers to these questions can help your attorney, accountant, and financial advisors determine strategies that can make an estate plan truly personal.

Rebecca Hammond: Thank you for watching our session today. Every person’s financial decisions are unique, especially on this topic, and should be addressed with your advisor. Therefore, if you have any questions regarding this information, please reach out to us at katzabosh.com. Thank you and have a great day.

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