What is The New Estate Tax Exemption for 2021?
Due to the Tax Cuts and Jobs Act signed into law in 2017, the estate tax exemption limit has been gradually increased over the past four years. The estate tax exemption in 2020 was $11.58M. This year the estate tax exemption in 2021 is increasing to $11.7M.
That means that due to this increased estate tax limit in 2021, estates valued at $11.7M or less will face no additional estate taxes. You’ll still pay your base tax rate, of course.
How is this year’s estate tax exemption different from 2020?
The major difference is the increased limit due to the law signed by President Trump in December of 2017. One of the provisions of that plan was nearly doubling the estate tax limits. This change lasts through 2021, and is set to expire in 2025.
The current administration has stated that they plan to revert the estate tax exemption limit to the levels that it was in 2009 ($3.5M). Either way, this increase in estate tax exemptions won’t last forever.
How to Take Advantage of The Estate Tax Limits in 2021
One strategy is gifting some of your assets to reduce the overall value of your estate. Gifts of up to $15,000 annually are exempt from federal income tax. This limit is per recipient, meaning that you could give $15,000 in gifts to ten different people and not pay taxes on it.
There are situations where you can give gifts in excess of $15,000 and still not pay federal taxes.
- Gifts to a spouse who is a legal US Citizen
- Universities to cover a students tuition and expenses
- Medical facilities to cover a patient’s medical expenses
It’s important to note, that with the last two examples, the gifts must be made directly to the institution, and not to the individual. Otherwise, they may be subject to taxes.
Don’t Wait Until the Last Minute! Take Advantage of Estate Tax Limits in 2021
The best piece of advice we can give is not to wait to take advantage of the historically high estate tax exemptions in 2021. They’re set to revert back to pre-2017 limits in 2025.
This process takes time, and hurdles can arise. You want to have the peace of mind knowing you can navigate this complex process and address any unforeseen issues without feeling the pressure of paying vastly higher taxes.