Real Estate Value Can Lead to Estate Tax Exposure
Here in Oklahoma, we have many farmers and ranchers who have large tracts of land that have been passed down from generation to generation. Here in Oklahoma, we have a lot of farmers and ranchers who have very large tracts of land that have been passed down from generation to generation.
This is a beautiful thing, and it is an important part of the fabric of the American experience. From an estate planning perspective, you have to recognize the fact that the estate tax is looming if you are in possession of valuable real estate.
Federal Estate Tax
The federal estate tax can take a significant bite out of your legacy. The maximum rate is 40 percent. This tax is imposed on the portion of an estate which exceeds the credit or exemption. The Tax Cuts and Jobs Act 2017 has a provision that allows for this to be the highest exclusion ever. The exclusion for married people is portable. This means a surviving spouse could use their spouse’s exclusion.
Federal Gift Tax
You might think about lifetime gift giving when you hear about the estate tax. This loophole was closed due to the gift tax being in place since 1932. It is unified with the estate tax, so the multimillion-dollar exclusion applies to lifetime gifts and your estate.
However, there is an additional annual gift tax exclusion that fits apart from the unified gift and estate tax exclusion. This exclusion allows you to give up to $18,000 to as many gift recipients as you want within a single accounting year. These gifts free of taxation without using any of your unified exclusion.
Additionally, you can pay school tuition for students without incurring any gift tax exposure. You can use your annual exclusion for additional cash support. This excludes living expenses, books, and other fees. You will not be taxed if you pay for someone’s medical bills or health insurance. When it comes to maintaining possession of property that has been in the family, you could establish an irrevocable life insurance trust (ILIT).
Without getting into all the minute details, the trust would hold insurance policies on your life. The proceeds from your life insurance policies could be used to pay for estate taxes after you die. This is one of many tax-efficiency trusts that people with estate tax concerns can use. The generation-skipping trust, qualified personal residence trust, and grantor retained annuity trust are a handful of the others.
Expiration of Tax Cuts and Jobs Act
As we have stated, the record-high exclusion that we have right now is in place because of the Tax Cuts and Jobs Act. This measure will expire at the end 2025. On January 1, 2026, the exclusion will revert to the 2017 level of $5.49 million indexed for inflation.
Remember, the exclusion applies to lifetime gifts along with your estate. So, you could consider giving lifetime gifts between now and the beginning of 2026 to take advantage of the current exclusion.
Take Action Today!
We can help you put a tailor-made estate plan in place even if you are not concerned about estate taxes. Different approaches can be taken, and the ideal course of action will depend on the circumstances.
When you work with us, your estate plan will be custom-crafted to ideally suit your needs. To set the wheels in motion, call our Oklahoma City estate planning office at 405-843-6100.
Our Tulsa location can be reached at 918-615-2700, and you can use our contact form to send a message to either location.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors Read More! Larry Parman, Attorney At Law, has posted the latest posts in his blog
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