The "DEATH TAX" is coming back!

•       You can leave an unlimited amount to your spouse with no estate tax.
•       You can leave an unlimited amount to charities with no estate tax
•       You can leave an exempt amount to anyone else with no estate tax. 
•       The exempt amount for deaths occurring in 2020 is $11.58 million - indexed for inflation each year for deaths occurring through December 31, 2025

Basically, a husband and wife can leave $23 million to their kids (assuming they have a properly crafted estate plan) with no estate tax. Anything over this amount will require the executor to pay 40% of the excess to the IRS within nine months.

Why do we tax people when they leave their hard-earned assets to their children? After all, these are people who have paid income taxes all their lives and still managed to accumulate substantial assets.

A little history may be helpful.

United States law is based on the English common law. The early English property ownership system was feudal - enormous property ownership was concentrated in the hands of relatively few families. The result was a huge discrepancy between the wealthy and everyone else. Inheritance taxation was introduced in England to break up the concentration of wealth  This system continues in the United States today and is the basis of estate taxes.

Consider this:  

• The top 1% of all households in the US own 30% of all household wealth
• The top 10% own 70% of all household wealth
• The top 50% own 98% of all household wealth
• The bottom 50% own 2% of all household wealth

Source: The Board of Governors of the Federal Reserve System   https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/  

Here is the problem:

The exempt amount will decrease from $23 million to approximately $6 million for deaths occurring after December 31, 2025 unless Congress passes new legislation. I have trouble imagining Congress passing (and Biden or Trump signing) a new tax law that benefits only the top 10% of all taxpayers.

Those of you with a net worth of over $6 million need to build into your financial and estate plan a way to pay several millions of dollars of estate taxes.

Here is an example. An estate of $20 million would incur a $0 estate tax liability if the second death occurred in 2020. If the second death occurred in 2026, that same estate would incur an estate tax liability of $3,200,000

Source: Money Education Estate Tax Calculator https://www.money-education.com/resources/calculators/estate-tax-calculator

In Conclusion

For those of you who have been fortunate enough to accumulate a substantial estate, you need to immediately focus on keeping and passing on what you have earned. 

Step number one is to talk to your financial planner. He/she should be able to show you options available to reduce or pay the tax.  

Lonnie Brooks CFP?, AEP?, ChFC

Disciplined Equity Management, Inc.   Don Davey, Founder 200 First Street, Suite 204 Neptune Beach, FL 32266 [email protected] (904) 222-0280 Office (904) 382-3078 Mobile