How May Changes to Estate and Gift Tax Impact Texans?

Although there has recently been a lot of news out of Washington, D.C.—particularly the COVID-19 Relief Bill—many individuals are interested in the 2022 fiscal year budget and the proposed changes that will be made. This includes expected capital gains and dividend tax rate increases for high-income individuals, along with any potential individual income tax rate increases. Another critical change is the expected estate and gift tax exemption. These changes will be made through the budget in order to fund the COVID-19 Relief Bill. While President Biden’s proposed budget will not be released until later this month, below are common questions about potential changes that will be made and how Texans should prepare their estate plan in the meanwhile.

What Gift and Estate Tax Changes Are Likely to Occur?

Currently, the estate tax and lifetime gift tax exemption is $11.7 million per person and $23.4 million for married couples. This means that if an estate exceeds $11.7 million, currently, when the person passes away, their beneficiaries—the people they are leaving the estate to—will pay a tax of 40% on the remaining value of the estate. If a person’s estate is valued at lower than this, their beneficiaries do not need to pay a tax. Additionally, if a person leaves their estate to their spouse, the spouse does not have to pay an estate tax—even if the value is above the exemption limit.

While people are unsure of the specifics of Biden’s proposal yet, it is likely the administration will seek an increase in the estate tax rate to 45% and to reduce the exemption to $5.3 million per person and $10.6 million for married couples. However, this figure may be altered depending on negotiations during budgetary discussions. Regardless of the changes, the estate tax exemption will likely be lowered.

What Is the Likelihood of These Changes Being Adopted?

The proposed budget—along with the taxes—is meant to fund the recent COVID-19 relief bill. Because of this, the proposed tax changes are expected to be wide-reaching, including the gift and estate tax changes. While Congressional committees in the House and Senate are already working on tax proposals, the nuance of the budget will likely change before being passed. The House and Senate will then approve of a budget resolution, which will only need 51 votes to pass.

Because the potential implications for Texan’s estate plans depend on the nuances of the budget, individuals worried about their estate plan should contact an experienced attorney before the budget is passed so they are prepared for whatever may come.

Contact a Houston Estate Planning Attorney

If you or a loved one believes your estate plan might be affected by a lowering of the estate and gift tax exemption, contact the Houston estate planning attorneys at McCulloch & Miller, PLLC. With years of experience handling estate planning matters, our attorneys are prepared to handle any changes that are proposed by the United States Congress. This means we will inform you of how alterations will impact your estate plan and advise you on your options. To speak with one of our knowledgeable attorneys and to schedule a free consultation, give us a call at 713-333-8900 today.

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