The IRS recently announced the 2021 federal estate tax rate limits, which are $11.7 million for individuals and $23.4 million for married couples. This is increased from $11.58 million and $23.16 million respectively in 2020.
Under this new guidance, wealthy Americans will be able to leave up to $23.4 million to their heirs without being subject to federal estate tax rates, which top out at 40%. The federal gift tax exemption will remain at $15,000 annually, meaning gifts made up to that amount will not be taxed by the federal government.
Will There Be Changes Under the Biden Administration?
While estate tax rates have stayed fairly consistent over the past few years, estate planning attorneys across the country are being asked by their clients how the presidential election may affect future federal tax limits.
During the campaign season, the Biden/Harris team proposed reducing the estate tax exemption to $3.5 million for estates and $1 million for gifts. The ability to pass such measures, however, appears to be a long shot, considering the current makeup of the Senate. The Democratic party now holds a very slim majority and lowering the estate tax threshold is not particularly popular on the Republican side. It would be difficult, if not impossible, at this point to get a majority of Senators to agree to such legislation.
Complicating matters further is the coronavirus pandemic. It’s anticipated that Congress will spend the next few months working on financial relief packages for individuals and businesses impacted by COVID-19. As such, major overhauls to the estate tax are anticipated to take a backseat in 20201 in favor of more pressing matters.
However, when it comes to the whims of Congress, estate planning lawyers “never say never.” That’s why we are continuing to keep a watchful eye on Congress should support begin to emerge for estate tax reform in 2021 and beyond. For real-time updates, be sure to follow our estate planning blog, or subscribe to our newsletter. Finally, if you have specific questions about the federal estate tax or how to avoid “death taxes” on your estate when you are gone, please contact us at (615) 846–6201 to schedule an appointment.
Estate planning offers legal protection for families and individuals through all of life’s transitions. Wills, trusts, powers of attorney, and healthcare directives are the most common estate planning tools we use to help clients protect their wishes, safeguard their assets, and ensure provision and care for their loved ones following their death or incapacity.
What Does My Estate Plan Have to Do with My Divorce?
Your estate plan can be impacted greatly if it’s not updated after a divorce. For example, if your ex-spouse has been named as a beneficiary on your life insurance policy, they may still be able to collect the proceeds if you suddenly pass away without updating your documents. Your ex-spouse may also retain authority roles as your power of attorney or healthcare agent unless you revoke such power. As a single adult, you must also name the people you now want to act on your behalf or manage your affairs in an emergency once the role is no longer filled by your ex-spouse.
Won’t a Divorce Automatically Stop My Ex-Spouse from Having Such Power?
While this topic has been introduced in the Tennessee General Assembly, no laws have been passed yet to prevent it. Although a divorce decree will remove your ex-spouse from inheriting under your will or serving as Personal Representative/Executor, it does not remove them from serving under other documents like your power of attorney or healthcare directive. And it doesn’t remove them from inheriting anything they receive as a beneficiary outside of probate such as life insurance, bank accounts, retirement accounts, or trust funds. That is why you must update your documents after a divorce to be certain that your ex no longer has this power.
What Documents Should I Update?
During your divorce, the law prevents you from making many changes to your financial situation or medical insurance. Once the decree is signed though, you will want to review and update the following documents:
- Power of Attorney
- Healthcare Directive
- Beneficiary Designations on Life Insurance Policies
- Beneficiary Designations on Retirement Plans
- Beneficiaries on any accounts with Payable on Death Provisions
Tennessee has laws that dictate when documents can be updated or altered as you move through the divorce proceedings. It’s important to speak with an experienced Davidson County will and trust lawyer before you make any changes, as any unapproved transfers or changes to your documents could be considered fraudulent. If you need help getting started, we are here to assist you with your planning. Contact our office by calling (615) 846–6201 or click here to schedule an appointment.