Estate Planning Before Tax Changes: What You Need to Know

Estate Planning Before Possible Tax Changes

Estate planning is an important way to make sure your money and belongings go to the people you care about after you pass away. Right now, the government allows people to pass on a lot of money without paying extra taxes. But this could change soon. Some wealthy families are taking action now to protect their money before new tax rules take effect.

If you're wondering how these changes might affect you, don't worry! This article will explain estate planning in a simple way, why people are concerned about tax changes, and what steps you can take to secure your family's future.

What Is Estate Planning?

Estate planning is when you decide what will happen to your money, property, and belongings after you pass away. It helps make sure that your loved ones receive what you want them to have. Some common parts of estate planning include:

• Making a will – A document that says who gets what when you pass away.
• Setting up a trust – A legal way to manage money for family members.
• Naming beneficiaries – Choosing who gets your bank accounts, life insurance, or retirement savings.
• Planning for taxes – Figuring out how to reduce extra taxes when passing down money.

Estate planning isn’t just for the super-rich! Anyone who has a house, savings, or valuable belongings should have a plan.

Why Are People Worried About Tax Changes?

Right now, the U.S. government allows people to pass on a large amount of money tax-free. This is called the estate tax exemption.

• In 2024, the exemption is $13.61 million per person (or $27.22 million for married couples).
• This means if a person’s total money and property is less than $13.61 million, they don’t have to pay estate taxes.

But here’s the problem:

• This limit might drop to around $6 million per person in 2026 when current tax laws expire.
• This means that more families could end up paying estate taxes, which could be as high as 40% on money over the limit!

This is why many wealthy individuals are making estate plans now before the tax laws change.

How Estate Planning Can Help Before Tax Changes

If tax laws change, some people may have to pay a lot more in estate taxes when passing money or property to their children. But there are smart ways to protect your wealth before new rules take effect.

1. Give Gifts Now

One way to avoid high estate taxes later is by giving money or property as a gift right now.

• The IRS allows people to give up to $18,000 per year (per person) without taxes.
• A married couple can give up to $36,000 per person per year tax-free.
• You can give to as many people as you want!

Example: If a grandparent gives $18,000 each year to their three grandchildren, they can move money out of their estate and reduce future taxes.

2. Create a Trust

A trust is a legal way to hold and protect money for your family. Some types of trusts can reduce estate taxes and make sure your money goes exactly where you want it to.

Example: A family sets up a trust for their children so they don’t have to pay high taxes when they inherit money.

Popular trusts for estate planning:

• Irrevocable Trust – Helps remove money from your taxable estate.
• Grantor Retained Annuity Trust (GRAT) – Reduces taxes when passing assets to family members.
• Charitable Trust – Helps donate money to charity while lowering estate taxes.

3. Pass Down a Business Now

If you own a family business, estate taxes could make it hard for your children to keep it. One way to protect it is by transferring ownership early before the exemption limit drops.

Example: A business owner transfers part of the company to their children now to lock in today’s higher exemption before it decreases.

4. Move Assets into a Family Limited Partnership

A Family Limited Partnership (FLP) is another way to pass down wealth while avoiding high taxes. This method lets parents keep control over assets while giving ownership to their children over time.

Example: A parent puts rental properties into an FLP and slowly transfers shares to their kids, reducing estate taxes.

5. Review and Update Your Estate Plan

Laws change, and so should your estate plan. If you made a will or trust years ago, you might need to update it to make sure it still protects your money under the new tax rules.

Who Should Act Now?

Estate planning is important for everyone, but it’s especially urgent for:

• People with more than $6 million in assets (or $12 million for married couples).
• Business owners who want to pass down their company.
• Families with valuable property, investments, or savings.
• Anyone who wants to reduce taxes for their heirs.

Even if you don’t have millions, having a plan helps protect your loved ones and makes sure they don’t face unnecessary taxes or legal issues.