The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
As we approach the end of the year, it is time to remind folks of the Biden Administration’s Sensible Taxation and Equity Promotion (STEP) Act. This makes a significant change to the Federal Estate Tax set to go in place January 1, 2026.
Right now under current law, there is a lifetime exemption of $12.9 million for a single person and $25.8 million for a couple. This means if the gross estate value is less than the lifetime exemption, no tax would be owed. However, the STEP Act lowers the Federal estate tax exemption to $5 million per person and $10 million per couple.
If you own a business, real estate or a farm or ranch, this will likely effect your estate. When you consider the value of a business, real estate, house, equipment, investment or savings accounts, vehicles and cattle, it does not take long to reach $5 million.
The use of marital deduction trust clauses will become the norm for documents with those families with substantial assets as I have described. These trusts were commonly used in 2001 and earlier when the Federal Estate Tax limit was $600,000.00.
Another planning tool is that you gift some of your cash into a trust that purchases a life insurance policy on you, a parent, or a grandparent. That policy is owned by the trust and at death the policy pays into the trust—at a rate of two to ten times the size of the original gift. TAX-FREE. Zero tax. Yes, not one penny to Uncle Sam. In fact, that would leave your family with enough to pay the estate tax and give generously to charities and foundations that you love as well as provide additional resources for your loved ones.
That’s a MASSIVE tax-free gift, isn’t it?
Now, even if you don’t have a $5 million estate, you may have assets that will grow enough that it makes sense to gift them out of your estate while the exemption amount is so high. Even moderate gifts can become extremely valuable inside a tax-free vehicle.
But you won’t know unless you talk to a professional who can guide you and help you formulate a strategy to take advantage of this window—a window that’s getting narrower by the day. To help you get the insight and planning you need to help you take advantage of this perfect tax storm, please come and see us now, because planning can take time and there are only six and a half months left before the window is scheduled to close.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas www.moakandmoak.com
