There is a saying, “nothing can be said to be certain but death and taxes.” Getting the carpets cleaned, getting our vehicles inspected, deep cleaning the house, going for an annual physical, and filing taxes are all things to be completed annually. The last two are, of course, to (hopefully) mitigate death and taxes. Few realize one item is missing from this list: the unified credit annual exam.
As you age, your body ages and changes, ailments develop, other ailments may have resolved after a year of lifestyle changes. As you age the value of a physical medical exam becomes increasingly more important in order to maintain good health and longevity.
Likewise, as your estate portfolio ages, it fluctuates in value based on investment, divestment, and charitable and personal gifts. While taxes may be certain, the unified tax credit has undergone frequent changes, so your exposure to estate tax is uncertain. Currently, the amount of the credit is historically high; however, it is scheduled to decrease dramatically by 2025, and could decrease before that year. To make sure you’re taking full advantage of the savings offered by the unified tax credit, consider scheduling an annual review with your estate planning attorney.
Understanding the Unified Tax Credit
The unified tax credit sets parameters under which an individual may avoid gift tax, estate tax, or generation-skipping tax incident to wealth transfers. The unified credit is the amount of value in your estate, both financial and tangible assets, that is exempt from estate tax upon your passing. This includes the total value of assets gifted during your lifetime in addition to the value of your estate upon your passing. The amount of the credit changes annually based on the Tax Cuts and Jobs Act of 2017 (TCJA).
In 2021, the first $11.7 million of a person’s estate is not subject to estate tax—double that for married couples. This amount is slated to increase annually based on inflation, but be cautioned—the unified credit was created with a sunset date of 2025. At that time, the tax credit is set to decrease to less than half the currently allowed amount.
Establishing an Annual Estate Plan Strategy
You wealth is a lifetime accomplishment and a legacy that is important to protect. There are several estate tax strategies that can be used to protect your wealth and ensure that your legacy leaves a continued impact on the world. Taking advantage of annual gifts and annual charitable giving are two ways to reduce future estate tax burden.
Annual gifts are financial assets or physical assets, such as real estate or vehicles, you can give to your loved ones and individuals of your choice without compensation or exchange. This allows you to provide for your family, or other individuals, while you’re alive and can witness their enjoyment. These gifts count toward your lifetime exemption and can help ensure you take full advantage of the unified credit.
Charitable giving is another avenue of annual giving that can help you to offset your estate’s tax burden. Many people have causes that are dear and meaningful to them. Establishing an annual charitable giving plan is a way that you can ensure a lasting legacy to support the organizations that do the charitable work that supports your passions. And these gifts also count toward the unified tax credit.
These estate planning strategies are helpful tools in decreasing future tax burdens if implemented properly. If they are not completed correctly, you could risk paying gift taxes in the year(s) of the gifts and not reduce the risk of federal estate tax. Anna Price is a high asset estate planning lawyer in WV, KY, and OH, who can help you plan and execute your annual giving plans for the best outcomes in each year and at end of life.
Maintaining Good Estate Planning Health
The unified credit was only $1.5 million in 2004. Through changes in legislation, the credit grew to $11.7 million in 2021. However, the law was written with a sunset date of 2025, meaning that is when it is set to expire. If new legislation does not extend the higher exemption levels, the credit will revert to 2017 level, which was $5.49 million—a significant difference.
These annual shifts in the law for both allowable, untaxable annual gifts, and the unified credit levels demonstrate the importance of an annual exam of your estate plan, your annual gifting strategy, and your outlook for the future of the legacy you leave behind.
The Importance of Annual Exams
You go to the doctor annually to get a physical checkup. That physical exam includes labs, disease screening based on your health risk factors, a listen to your heart and lungs, and palpation of your neck and abdomen. These exams are all done to ensure that you maintain good health and longevity. Caring for yourself with an annual physical exam also helps to ensure that you get to continue to grace the world with personal direction of your financial legacy.
An annual exam of your estate plan and annual gifting strategies is equally important to the longevity of the legacy. Wealth that has grown into the millions can be at a significantly reduced by incurring a hefty federal estate tax. The unified credit is subject to change annually—could change more drastically before its scheduled 2025 sunset date—so revisiting your estate plan annually is critical to its preservation.
It becomes increasingly important to work with a high asset estate planning lawyer in WV, KY, and OH for an annual examination of your estate plan. Estate tax attorney Anna M. Price at Jenkins Fenstermaker, PLLC has the experience you need to guide you in your estate tax strategies. Anna helps clients throughout WV, KY, and OH begin their legacy while living and ensure that legacy is carried on after they have passed. To learn more about how Anna can help with the annual strategy for maximum use of the unified credit, schedule a consultation by calling (304) 523-2100 or complete this online contact form.