Many people have heard the term “estate planning” but most individuals will not do any form of estate planning even though it may provide a significant benefit. The purpose of an estate plan is to protect your beneficiaries, provide clear directions for the distribution of assets, honor your legacy wishes, and create a plan for other medical and financial decisions if you become incapacitated or die.
The four main components of an estate plan are:
- A last will and testament
- Healthcare power of attorney and living will
- Financial power of attorney
- Establishing a trust
Using these elements to create a plan will ensure that distribution of your assets is carried out as you wish and your legacy can make a lasting impact.
When beginning the estate planning process, it’s important to understand estate taxes and how they could play a role in your planning. An estate tax is a tax on the transfer of the estate after a person is deceased. However, due to the high lifetime exemption amount that is currently in place, not as many people end up paying an estate tax as you might think. But it is imperative to know how estate tax changes could affect you.
Who Pays an Estate Tax?
As it stands right now, the lifetime exemption amount for estate taxes is set at $11.7 million per person, which is why about only 0.1% of the U.S. population ends up paying an estate tax. This means that married couples can collectively have over $23 million in assets before an estate tax would take effect. However, when you start looking at people that have family businesses or have legacy wealth, whether it be farmland or investment portfolios that have been around for many generations, it changes who may or may not have to pay an estate tax.
Estate taxes are paid directly from a deceased individual’s estate before assets are distributed. The current estate tax rates are about 40%, which is why it is important to understand who pays and what you currently have for assets.
The Future of Estate Taxes
Tax laws may change. Each new presidential administration often proposes tax law changes in favor of the goals of the administration which is why many people fear change after an election. There are certainly many articles and experts out there talking about what could happen with estate taxes in the future, but as it relates to financial services and wealth building we don’t really know anything for certain. In 1997, the estate tax limit was only $600,000 per person which is a huge difference from the current $11.7 million. If the estate tax limit was only $600,000 then there would be a lot more people with an estate tax issue. One of the biggest uncertainties is what will happen to the exemption that is at $11.7 million right now. That is scheduled to end in 2025 and then it goes back to the pre-2017 rules which was an exemption of $5.49 million per person.
The uncertainty surrounding the future of estate taxes is why a lot of people are trying to take advantage of that personal tax exemption of $11.7 million right now. It is important to consult professionals to ensure you have a proper plan and that you are prepared for the future of estate taxes.
Build an Estate Plan Today
Do you have an estate plan? If not, contact our LSB+ professionals today by calling (800) 588-7551 or go online and take the LSB+ assessment. LSB+ is an exclusive program from Lincoln Savings Bank designed to help you protect today, maximize tomorrow, and impact eternally. Our LSB+ professionals will work with you to create a custom estate plan that will minimize future estate taxes and maximize wealth regardless of how tax laws may change over the coming years.
After becoming thoroughly familiar with your needs and goals, our professionals will offer our expert interpretation for the proper management and administration of your estate. We will clearly and candidly explain the various options available to you such as wills, trusts, powers of attorney, life insurance, gifts, and more. We will also provide ongoing advisory services for your estate plan, acknowledging changes in your family or estate and tax law changes. A sound estate plan will minimize future estate taxes and maximize wealth for yourself and future generations.
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