The Estate Dilemma

Recently, we have fielded numerous questions on the Estate Planning landscape and how to best navigate what portends to be some pretty drastic changes.  Thus, we felt it timely to write a quick piece on the current landscape as we see it and to share some actionable ideas.

There have never been more favorable tax laws for a decedent with a sizable Estate than now.  Current exemptions, indexed for inflation, are at $11,700,000 per spouse for tax year 2021.  This means as long as assets are properly titled with ownership being 50/50 per spouse, or a proper Credit Shelter Trust has been created, there would be no federal estate tax due on Estates worth $23,400,000 or less for married couples.  Actually, this past year, only about 1,900 families owed Estate taxes out of the roughly 2.8 million Americans who passed away.

All of this is most certain to change.  First, the current law is scheduled to sunset, or expire, by the end of 2025, which will reduce the individual exemption back to $5 million, indexed for inflation.  The Biden administration currently has proposed roughly the same reduction on the individual exemption by 50%, down to $5,850,000.  As an example:

A retired, single person has a total Estate worth $10,000,000.  If they died tomorrow, the Estate taxes owed would be $0.  If they passed away 1/1/2022 or thereafter, under the proposed plan, the difference between the total Estate amount ($10,000,000) and the reduced exemption ($5,850,000) will be taxed at a 40% rate, resulting in taxes owed of $1,660,000.  Quite a large difference!

gift as much as you are comfortable gifting this year

What can be done?  The first strategy is to gift as much as you are comfortable gifting this year to reduce your Estate before any changes are made.  An example looks like this:

A married couple has a combined Estate of $20,000,000. They decide they only need $3 million to live on, so they gift $17 million to their kids and grandkids prior to January 1, 2022. This reduces their lifetime gift exemption to 0 going forward, but their entire $17 million gift was made tax free. On January 1, 2022, the rate they would pay on that same gift becomes 40% of anything over $11.7 million. In this case, that would be $2.12 million in estate taxes. This is a rare, “use it or lose it” opportunity to complete some tax policy arbitrage.

These numbers may sound large, but don’t forget what is included in a taxable estate. “The Estate Tax is a tax on your right to transfer property at your death. The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.” ( With the current level of the stock market and appreciation in residential and commercial real estate values, it wouldn’t be surprising to see this tax impact more people.

Maybe you are not inclined to gift such an amount at this time.  Another tactic utilizes the Irrevocable Life Insurance Trust (ILIT), provided the person is insurable.  This will create an asset outside of your taxable Estate, which will pass tax free to your beneficiaries, allowing them to have the necessary capital to pay for the future Estate tax liability.

As we work closely with other trusted advisors, such as CPAs or Estate Attorneys, please let us know if you are interested in an introduction to explore these strategies further.  As always, we hope you find this information useful as we continue to strive to bring relevant content to our clients.

Karl A. Wagner, III
Senior Wealth Advisor


Sources:; Forbes; Tax Policy Center

The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change; you should consult your tax or legal professional before engaging in any transaction.