Every year the federal government decides how much of your estate isn’t subject to taxes when you die. This year, thanks to inflation, it increased to $11.7 million.
This means, when you pass away, the value of your estate is calculated, and any amount more than $11.7 million is subject to the federal estate tax. A married couple has a combined exemption for 2021 of $23.4 million.
The estate tax isn’t a simple 40% on your taxable amount. The estate tax rate on anything exceeding $11.7 million is a progressive tax—18% to 39% for the first $1 million, then a flat 40% for anything over that.
It’s worth noting that when the Tax Cuts and Jobs Act doubled the estate tax exemption in 2018, the change came with an expiration date. In this case, on Jan. 1, 2026, the estate tax exemption is set to drop back to what it was before 2018: $5.6 million.
Without going too deep into President Biden’s proposed tax changes, he’s pushing for an individual taxation plan that would hit those with incomes above $400,00 hardest. The proposed top income tax rate would increase the present law’s 37% rate to 39.6%. According to the White House, this increase will affect only the top 1% of taxpayers. Further, his capital gains tax proposal would likely affect taxpayers whose incomes exceed $1 million.
So, what might these taxes look like for you going forward? If Biden’s tax plan to reduce the exemption to $3.5 million comes to fruition, consider offsetting your numbers by gifting earlier on in retirement or using life insurance as an estate planning tool.
Tax changes are inevitable, so now might be the perfect time to talk through some financial options and review your long-term plans. Taxes are complicated, so you’ll want some professional guidance. Contact us today at (540) 720-5656.
Adapted from IRS1
Adapted from Congress.gov2
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Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. Megan is also a fully licensed Life, Health, and Annuity agent. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter.