How Current Laws May Affect Your Estate Tax Bill

2021 is more than halfway over, which means you may only have a few months left to take advantage of current legislation that could trim your estate tax bill.

Seeking to safeguard the assets you’ve worked so hard to build? Consider making plans to gift or transfer your those assets from your estate.

Here’s what you need to know.

How The Tax Cuts and Jobs Act (TCJA) Impacts You & Your Business

In 2017, President Trump signed into law The Tax Cuts and Jobs Act (TCJA), which reduced tax rates on both business and individual income. 

One very important piece of this legislation is that an individual can transfer $11.18 million, either as a gift while alive or as a bequest after death, without being subjected to a 40 percent estate tax. 

What does this current legislation mean for a business owner?

For owners who are fortunate to have built a substantial business (think approximately $8 million or greater) under the TCJA, gifting money to another person could save you millions of dollars in taxes. The wrinkle in this scenario is that the time to take advantage of this law is dwindling. 

President Biden is currently trying to reduce the $11.18 million gift tax exemption to just $3 million. If this reduction were to pass, come January 1, 2022, individuals would be taxed on asset transfers over $3 million, and that does not include the state death tax.

In short, if individuals and families seek to pursue this time-sensitive, tax-saving opportunity, it maybe time to act.

An Unprecedented Opportunity

“The current amount of $11.18 million gift tax exemption is more than double the individual limit from just a few years ago. By taking advantage now, business owners have the chance to control how assets are made available to the next generation while saving millions of dollars. The current opportunity to transfer large amounts of wealth tax-free may be too rare of an opportunity to pass by.,” said Ron A Pac, Managing Partner of Trivium Point Advisory, Westchester-based wealth management and business consulting firm.

“If you wait until 2022, you may be exposing your estate to taxes you could have avoided. It could be an intimidating process, but a necessary one.” he continued.

Preserve Your Wealth By Working With The Experts 

Business owners may be unaware of legislation changes taking place. These changes could run the risk of impacting their assets accumulated.  

Leveraging the experience of experts like Trivium Point Advisory strives to help shelter the value of your business and your assets, allowing you to take advantage of efficiencies to manage your accumulating wealth.

Other than gifting, creating a trust fund is an excellent way to hand money down. Trusts seek not only to provide asset protection but give you more control over how your fortune is made available to your beneficiaries. For example, creating a trust may prevent recipients from receiving a significant amount too quickly and provides future generations an opportunity to manage the inherited wealth.

“For example, if your business is worth $15 million, you may find yourself with a massive estate tax issue. If you can design a structure with the assets secured in a trust, you will still have the rights and authority to access the now safeguarded fortune. Think of a trust as a bucket, and by putting your assets in this bucket, it aims to insulates you from a majority of outside exposures,” commented George R. Gerhard, Managing Partner of Trivium Point Advisory. 

Additionally, many businesses are family-owned, which means that there are opportunities to take advantage of specific options particular to this type of business.

While it may feel intimidating and even sensitive to have these conversations, bringing in the specialists who can help to make sure plans are in place will allow you the opportunity to take swift action toward opportunities.

Planning Takes Time

The opportunity to tax-efficiently transfer wealth to the next generation and beyond is rare. Given the timeline (end of 2021!) associated with the estate and gift tax exemption, it’s crucial to reach out to your advisors now.
Gerhard relayed that the process can take a minimum of four months to sit down and plan, determine a strategy, submit paperwork to attorneys, and so forth. 

In thinking about the lengthy planning process, he highlights the importance of staying focused.

“Here at Trivium Point Advisory, we lead with strategy and not products. By sitting down with our clients and understanding the full financial picture alongside their goals for their loved ones and the future, we can create a strategy that makes sense,” said Gerhard.

Additionally, while the $11.18 million exemption may be pertinent to some businesses and not all, don’t hesitate to be proactive in planning for your estate. Anyone with assets such as a home or savings account should be thinking about how their wealth may one day be distributed.  

The team at Trivium Point Advisory is here to guide you through how best to manage and distribute the wealth you’ve worked so hard to accumulate. They have provided extensive and highly skilled business consulting and wealth management services for clients in Westchester and throughout the greater New York area.

Contact us today so that we can navigate the complexities of planning for you.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. Trivium Point Advisory and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.