Everyone in Pennsylvania should do an evaluation of their estate plan on a regular basis. As we go through life, our situations often change even if we do not realize it, and evaluating all aspects of life on an annual basis can be a good personal policy. And, there is no time like tax season to do this reassessment. People’s incomes may not change drastically, but asset ownership and personal responsibilities or liabilities can change. The year 2021 is bringing tax change proposals in many states as well as federally, and being on top of the changes is especially important this year in preparing for looming tax legislation.
Changes in tax law
One of the most important possible changes in tax law this year affects transferring wealth within the family, which is typically central to a comprehensive estate plan that includes a last will and testament. Beneficiaries and inheritors should be evaluated regularly for some individuals, including consideration of trusts or loans that may protect some assets in the long run. The current administration is seriously pushing for increases in wealth transfer taxes and significantly reducing the exemption maximum of $11.7 million back to the previous $3.5 million level, which in itself is enough to invoke an estate planning reassessment. For couples, the maximum exemption is $23.4 million. Getting prepared well in advance is a good decision when it is apparent the landscape will change at least somewhat if not a complete reversal in policy in the near future.
Freezing your estate
Families who are in the high-income range may want to consider taking steps to “freeze” their estate size in order to avoid a higher taxation rate. This can be a complicated legal process, and it is always best to have an experienced estate planning attorney evaluate a current estate for changes that could improve asset protection through certain instruments like a Grantor Retained Annuity Trust. Irrevocable trusts are also an excellent method of transferring wealth to another entity in avoiding high taxation.