{"id":1941,"date":"2021-09-14T00:00:00","date_gmt":"2021-09-14T00:00:00","guid":{"rendered":"https:\/\/wordpress-257273-2704704.cloudwaysapps.com\/newsletters\/preparing-your-clients-for-the-reduction-in-the-estate-tax-exemption\/"},"modified":"2021-09-14T00:00:00","modified_gmt":"2021-09-14T00:00:00","slug":"preparing-your-clients-for-the-reduction-in-the-estate-tax-exemption","status":"publish","type":"newsletters","link":"https:\/\/wiroweklaw.com\/newsletters\/preparing-your-clients-for-the-reduction-in-the-estate-tax-exemption\/","title":{"rendered":"Preparing Your Clients for the Reduction in the Estate Tax Exemption"},"content":{"rendered":"

In late May of this year, the U.S. Treasury released a publication detailing a number of the proposed tax code changes that the Biden administration would like to usher through Congress in an ambitious effort to modernize the US tax system to meet its citizens\u2019 needs. While reasonable minds may differ strongly on the best way to stimulate the US economy and create wealth and security for the American people, one thing is certain: the need for individuals to engage in careful estate and tax planning to avoid paying more tax than necessary is not going away.
 
The IRS publication,[1] sometimes referred to as the Green Book, outlines a number of key proposals that\u2014if ultimately passed\u2014have the potential to significantly shake up the estate planning world as we know it today by sidelining a number of tried and true estate planning strategies while potentially increasing the frequency of use and usefulness of others.
 
As some commentators have observed, any direction to reduce the estate and gift tax exemption amount from its current historically high level of approximately $11.7 million per taxpayer is noticeably absent from these proposals.[2] Although there is certainly no guarantee that such a proposal will not be made in the future, we can nevertheless help our clients focus for now on what we do know about the law as written today and what steps we and they can take to address the coming changes.
 
One of the first things that clients need to understand is that, even with no action whatsoever by Congress, estate tax laws passed under the Trump administration will expire and reset to the prior laws in 2026. This reset will restore the estate and gift tax exemption amount to $5 million, as it was in 2016 (though it will be indexed for inflation, resulting in an exemption amount of approximately $6.6 million in 2026). Again, this is the law as it stands today; without further action from Congress, it will remain the law.
 
It is therefore important to consider with your clients the average rates of return on their investments, compounded annually, to determine what kind of return on their investments they can expect within the next five to ten years. Using a basic calculator or spreadsheet, many of your clients may be surprised to see that, even with a moderately healthy return of approximately 7 percent annually, their net worth could easily double in ten to twelve years. If the estate tax exemption amount is halved in 2026 and increases only with inflation at a rate of approximately 2.5 percent per year, clients could very quickly find themselves at risk of paying significant estate taxes (currently at a 40 percent rate) if they are still in the mindset of having an $11.7 million estate tax exemption ($23.4 million for married couples) available when they pass away in the next one to two decades.
 
What should we be doing now?<\/b>
Given the current uncertainty, trying to predict the future and counsel your clients on which strategies will best accommodate their tax and estate planning goals can be frustrating to both you and your clients. This is particularly true when we consider some of the other Green Book proposals:<\/p>\n