Spring Cleaning: Reviewing Your Estate and Tax Planning Documents

A Conversation with Varra Financial Associates and The Germany Law Firm Colorado families should annually review their estate and tax planning documents, regardless of the number of assets they hold. Working in tandem with an experienced estate planning attorney and a financial planner is the best way to ensure your assets are protected for generations to come. In the following article, we collaborated with Varra Financial Associates to discuss frequently asked estate planning and tax planning questions:

What is an inheritance tax? As of 2022, the U.S. “inheritance tax”, which sits at a hefty 40%, only applies to estates with assets above the $12,060,000 exemption amount per individual, or $24,120,000 per married couple. In Colorado, moreover, there is no state estate tax.

My estate isn’t subject to an inheritance tax. Do I still need an estate plan? While most families in the United States will not be subjected to an inheritance tax, this does not dismiss the importance of estate planning. It’s important to most people that all the things they own are passed to recipients as intended and without problems or delays. Estate plans include these important instructions via legal and financial documents, but also typically include a host of other living documents that address situations where an individual may be sick, incapacitated, or unable to make decisions for themselves. Having a plan for as many of the possible scenarios one could come across is best practice.

What is the Federal Estate Tax Exemption? As a result of the TCJA of 2018, the federal estate tax exemption amount of $5 million per person went to $10 million per person. If Congress does nothing (passes no new legislation), the law will sunset in 2026 and the exemption amount will return to the 2018 $5 million level. Adjusted for inflation, estimates indicated the new amount will likely be low to mid $6 million. This begins to include many more families in this country. “We believe now is a good time to be proactive in planning for this potential outcome and discussing the possibility of any others. As we get closer to 2026, we are hopeful we will have a much clearer picture of the direction legislators are heading to prepare plans for those who may be impacted”, says Gina Varra, owner of Varra Financial Associates.

So, if the exemption amount is potentially coming down in 2026 and more assets are subject to federal estate tax, what are some ways to plan for and avoid this? James Johnson, from Varra Financial Associates, suggests, “Annual gifting is one strategy that can be helpful to transfer some funds while living, and it is an attempt to control what is above any estate tax threshold amount. The unified credit of $12,060,000 includes assets transferred after death and assets transferred to non-spouse beneficiaries while living. Transfers to spouses are unlimited. There is a smaller annual gifting exclusion amount of $16,000 in 2022 that allows a donor to gift funds to individuals in this amount without using up any of the unified credit amounts. Gifting funds directly using this exclusion amount is one tool we may suggest planning for minimizing estate tax down the road.” Depending on the situation, there are many other tools and options available to build and execute an effective estate plan for you and your family.

How often should I review my estate plan? Tax regulations are subject to change, both federally and locally, so it is important to have annual conversations with your estate attorney and your financial planner. Touching base with your estate planning attorney on an annual basis is a great way to guarantee your assets are protected and your wishes are met. Working with an attorney and a financial and tax planner is a benefit and allows a more holistic approach to estate planning.

Meeting With an Estate Planning Attorney for Estate Planning At The Germany Law Firm, we help individuals and families protect their assets and their legacy. We specialize in small business succession and estate planning. Call us today to set up an initial consultation.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

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