Higher Estate and Gift Tax Limits for 2021
We aren’t entirely sure of what the new year will bring, but one thing we are confident of: our clients will be able to leave more of their money to their loved ones tax free. The IRS recently announced that the official estate and gift tax limits are increasing in 2021. We encourage residents of The Villages to assess whether this increase will impact their estate planning needs. Please contact one of our estate planning attorneys to learn more.
How the Gift and Estate Tax Exemption Works
Most transfers are taxable events, but the IRS code has many exceptions and exemptions. For example, transfers between spouses are typically tax free. This means you can give an asset to your spouse and no gift tax is due. Divorcing couples can also transfer assets tax free when done pursuant to a property settlement agreement or divorce decree.
There is also an annual gift exclusion that applies whenever you make a gift. For 2021, you can give $15,000 to someone without incurring any federal gift tax consequences. Even better, you can give this amount to as many individuals as you want. Many of our clients like to make gifts to their grandchildren, and happily they can give up to $15,000 to each. If you are married, then both spouses can give $15,000, which effectively doubles the amount that you can give tax free.
When you give more than the exclusion, you will eat into your exemption. This is the total amount you can give during your life or at death without incurring gift or estate taxes. Currently, the estate and gift tax exemption is $11.58 million for an individual. Married couples can leave double that amount.
For 2021, the Internal Revenue Service has announced that the limits are increasing to $11.7 million for individuals and $23.4 million for married couples—an increase of a little over 1%. This means you can give even more during your life or at death.
Will the Higher Limits Last?
Taxes are a political issue, and there is always pressure to increase the tax rate. President Trump and the Republican Party took credit for doubling the exemption amount, which was around $5 million per individual. This doubling will last until 2025. However, what happens then depends on the balance of power in Washington, D.C. If Democrats gain control of all branches of government, then they might roll back the increases.
Nevertheless, our clients can begin estate planning right now. The IRS has stated that, even if the limits decrease in the future, they will not claw back any gifts or retroactively tax them. There is never a better time to review an estate plan and make any necessary gifts as part of it.
Contact an Estate Planning Lawyer in The Villages
Millhorn Elder Law Planning Group takes great pride in helping the community create estate plans. For help with yours, give us a call, 800-743-9732. We can advise you about the best method for leaving assets to your loved ones, now and at death. Call to schedule a free consultation.