Do you have an estate tax issue you don’t know about?

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Many business owners and real estate investors I meet with are surprised when I tell them they may have an estate tax “issue” in our first meeting. 

The estate tax is applied to the value of one’s gross estate above the lifetime exemption and it quickly climbs to 40%. 

Your gross estate includes everything you have an ownership interest in at the time of death:

• Cash

• Retirement accounts

• Brokerage accounts

• Personal property (cars, jewelry, artwork)

• Primary and vacation homes

• Commercial or investment real estate

• Private businesses

• Face value of life insurance (yes, that too!)

You may have little personal liquidity, but because of the value of your business, real estate and other ownership interests, you could still face significant estate tax liabilities.  This could result in a “perfect storm” for your loved ones trying to settle a business-rich, but cash-poor estate. 

Currently, the exemption is $13.61 million per individual, the highest it has ever been due to the 2017 TCJA. However, this is due to sunset to pre-2017 levels indexed for inflation (likely around $6–7 million) by the end of 2025 unless Congress extends it. Meaning, the clock is ticking between now and the end of next year to take advantage of the current higher exemption amounts if Congress doesn’t extend.  

Many states also impose their own estate or inheritance taxes in addition to the federal liability. There are strategies to mitigate these taxes, but it’s a personal and complex balance depending on your goals, family, and business dynamics and needs to be executed in conjunction with an estate lawyer and tax advisor.