Blog Summary/Highlights
- Estate Tax Changes Are Coming
- How It Will Affect Your Client
- Your Options to Capitalize on the Opportunity
As early as next year, we might see significant changes to the current estate tax structure, per Biden’s suggested adjustments. Regardless of its outcome, we know that we will see changes in the next five years that will have a significant impact on your wealthy clients’ estate.
Are you ready?
- If YES, then you’re in a position to properly serve your clients AND create some great additional sales opportunities for YOU.
- If NO, then you have some catching up to do.
What We Know
Estate Tax changes ARE coming. Even if Biden’s newly proposed changes don’t get put in place, the 2026 Sunset Provision change is less than five years away, and it will mean BIG changes for your wealthy clients.
What Will Change
The Estate Value Exemption will decrease significantly under both Biden’s proposal and under the 2026 Sunset Provision law. The $11,700,000 transfer-of-estate exemption will be cut in nearly half and it will bring with it a big potential burden for your clients’ beneficiaries.
Hypothetic Scenario, Assuming a Single Individual Estate of $11,700,000 (with an annual growth rate of 5%)
Today’s Law
| Today | 5 Years | 10 Years | |
|---|---|---|---|
|
Estate Value |
$11,700,000 |
$14,932,500 |
See Sunset Table Below |
|
Estate Exemption |
-$11,700,000 |
-$11,700,000 |
|
|
Taxable Estate |
|
$3,232,500 |
|
|
Tax Rate |
40% |
40% |
|
|
Estimated Estate Tax |
-0- |
$1,293,000 |
|
2026 Sunset Rules
| Today | 5 Years | 10 Years | |
|---|---|---|---|
|
Estate Value |
N/A |
$14,932,500 |
$19,058,100 |
|
Estate Exemption |
|
$6,000,000 |
$6,000,000 |
|
Taxable Estate |
|
$8,932,500 |
$13,058,100 |
|
Tax Rate |
|
40% |
40% |
|
Estimated Estate Tax |
|
$3,573,000 |
$5,223,240 |
Biden’s Proposal
| Today | 5 Years | 10 Years | |
|---|---|---|---|
|
Estate Value |
N/A |
$14,932,500 |
$19,058,100 |
|
Estate Exemption |
|
$3,500,000 |
$3,500,000 |
|
Taxable Estate |
|
$8,932,500 |
$13,058,100 |
|
Tax Rate |
|
45% |
45% |
|
Estimated Estate Tax |
|
$5,144,625 |
$7,001,145 |
As you can see, there will be changes one way or the other and the changes are significant. One question we have to ask ourselves is this; How does our client want his/her family to pay the estate taxes? There are three options.
- Liquidate some of the assets to pay for the estate tax, which is paying the taxes dollar for dollar and lose some of its future value
- Borrow the funds needed to pay for the estate tax, which would be paying the estate tax with dollars plus interest
- Buy a Life Insurance Policy, which provides an opportunity to pay the estate tax bill with discounted dollars*
Which is the best for your client? Which one pays YOU? How many times this year have you talked to a client about this????
Call us today to allow us to support and work with you to find the best possible solution.
PLEASE NOTE: For TODAY’S and the 2026 SUNSET RULES provisions, a married couple’s exemption is double the example above. For BIDEN’S proposed provision, it remains unclear how a married couple vs. individual’s exemption will be handled.
*Example: Assume a male age 60 purchases a preferred non-smoker life insurance policy. If so, he will pay 1.7 cents per dollar of death benefit per year, and in 30 years (at age 90) he is still paying roughly 50 cents per dollar of death benefit.