Much is made of how few taxpayers will pay federal estate taxes since the lifetime exemption was increased by the Tax Cut and Jobs Act of 2017.
But there may be more prospects than you think. In any case, here is all you need to know to get the ball rolling in a discussion with any client:
- Each taxpayer has a current lifetime exemption that protects the first $11,580,000 of their taxable estate (roughly his or her net worth).
- With proper planning a married couple can 1) defer any taxation to the second death and then 2) protect their combined exemptions of $23,160,000. Hokie smokes, Bullwinkle!
- Any excess is taxed at a flat 40%.
- But (and this is a big but!), on January 1, 2026, the exemptions will be reduced by 50% (currently to $5,790,000 per taxpayer and to $11,580,000 combined per married couple).
- And even more, the 2026 levels are not guaranteed. The government can do anything it wants to change the tax law any time it wants – even eliminating the exemptions altogether and raising the tax rate.
- States of confusion – Don’t forget that about half the states have a death tax that can affect clients who are residents or hold property in the state. A quick check for state laws is https://advisor.johnhancockinsurance.com/content/JHINS/en_US/knowthelaw.html.