Many business owners have seen financial success in the past year and, upon review, realize that the value of their assets and businesses are at an all-time high. This makes now the prime time to understand your net worth, get your estate documents in order, take advantage of the lowest exemption amounts, and develop the best plan for your circumstances.
On an individual basis, our hectic lives often get in the way of planning for the future. As busy individuals we tend to put this off thinking we have plenty of time or it’s not a pressing issue. Planning for the future is something that we all should make a point to do, regardless of our age, health condition or family dynamics. Age and health conditions do speed up the necessity of getting this done, but the reality is, if you have minor children and/or assets that you would like to protect, planning for the future is now.
Look for gift taxes to increase
The lifetime gift exemption for 2021 is $11.7 million. With the Biden tax plan working its way through the legislative process, it is still uncertain as to how much will be allowed as lifetime gifts. Without any legislation, the exemption falls to $6 million in 2026. Should the Biden plan get passed, the exclusion will most definitely drop before 2026.
With that possibility on the horizon, we recommend that you take some time now, before the end of 2021, to consider what you would like to transfer (i.e., protect) during 2021 while the exemption is at $11.7 million. For a married couple, each spouse can gift up to the limit of $11.7 million.
Gifts to trust
This can be done with outright gifts and gifts to trust. One strategy that we have seen used more often in the past year is gifts to a Spousal Limited Access Trust (SLAT). This is a grantor trust that allows one spouse to put money or assets in the trust for the other spouse for life. This is an irrevocable trust; however, the gifting spouse has access to the funds as needed. Even better, the second spouse can do the same and make a gift to a second SLAT. Dynasty trusts have similar benefits and allow distributions at the discretion of the trustee.
If outright gifts are preferable, gifts to individuals of $15,000 per donee ($30,000 per couple) is a simple strategy, along with payments of medical and educational expenses which are exempt from gift tax if paid directly. Popular charitable gifting strategies during your lifetime (vs. Testamentary Donation/Bequest at death) include Donor-Advised Funds and Charitable Lead Trusts. Donor-Advised Funds allow charitable deductions in the year of contribution, with payments to charities any time in any year from the invested funds. Charitable Lead Trusts allow a charitable deduction at the net present value for future periodic payments, leaving the remaining balance to beneficiaries at the end of the trust term. Below is an example of the tax benefits of a Lifetime versus Testamentary Donation:
Review your estate plan
If you already have an estate plan, this would be a very good time to get with your attorney to review the plan to see if any changes should be made prior to the end of 2021.
If your assets include excess cash and you need help with investing, we have resources to help with that as well. This will help to grow your cash for yourself and your loved ones.
Planning for the future is unique for everyone and circumstances can change suddenly. Make an appointment before November, if at all possible, with your attorney and Antares Group advisors to help work through your estate and gift planning. Together, they can help you identify what assets and individuals you would like to plan for and outline ways to accomplish your goals.
If you do not have an attorney, contact us here at Antares Group and we will make recommendations for an attorney who will be able to help.
We are here to help you. As your trusted advisor, we can work with your estate planning attorneys and wealth managers to make sure your assets are protected for your heirs. We can refer you to several attorneys we work with on a regular basis if you need, and our Antares Wealth Management team is available if you are looking for more individualized and targeted investment advice.
Again, we would stress the importance of planning for the future. This is regardless of your age, health conditions or family dynamics. If we have learned anything from the Covid-19 pandemic, it’s that no one is guaranteed tomorrow. Contact us as soon as possible because planning for the future is NOW.
Tamra Newman, CPA, CVA, is a Senior Manager with our Business and Tax Advisory Group. She can be reached at firstname.lastname@example.org. Carolyn Allen, CPA, is a Manager with our Business and Tax Advisory Group. She can be reached at email@example.com.