Common Questions on Estate Planning

In this video, Matt Blocki and Jamison Smith from EWA discuss three common estate planning topics and factors to consider before the 2025 exemption limit changes. They cover gifting strategies based on the exemption level, tax-efficient account designations, and handling non-liquid assets like real estate or businesses. They recommend reviewing your estate plan every three to five years to adapt to changing circumstances and laws.

Video Transcript

Hello, I’m Matt Blocki with EWA. Jamison Smith with EWA. In today’s video, we’re going to discuss three common topics that we address in estate planning specifically and one’s financial plan and also some factors that are going to sunset at the end of 2025 that should be taken into consideration now.

The first question we have is right now the exemption level is $11 .7 million per individual, meaning if you pass with $11 .7 million or less, there will be no federal inheritance tax when you pass. If you pass above this, then there is a 40% federal inheritance tax that applies.

So a common question is, should we be gifting money now while the exemption is higher? And the answer that Jameson is going to describe, it really depends, correct? Yeah, so it depends on how big the gift is. Net worth, for example, is $50 million and you can gift that entire $11 .7 million at once.

You could use up that whole exemption and then if the exemption drops down to $6 million, for example, you’re not taxed on that $4 million. Flip side though, if let’s say net worth, you’re not capable of doing that from a net worth perspective.

If you only gift $6 million now and then the exemption drops down to $6 million, you never get to use that $4 million. So point of it is, if you want to take advantage of the whole thing, you have to gift up to the entire exemption today. Basically, only a benefit, assuming that the tax law doesn’t change, the sun sets in 2025, at that point it’s expected to be about a $6 million exemption versus $11 .7 million exemption.

The only benefit, assuming that those limits in fact do stay, is if your every dollar above $6 million that you’re gifting is a benefit, anything below that, it’s really irrelevant. Yeah, correct. The second question that we often receive and often advise on is, what kind of accounts are most tax -efficient to be passed on and is there a specific designation I have given my beneficiary or charity’s tax bracket?

What should go to whom? Same as in Walker’s through that. Yeah, so the federal estate tax applies to all accounts, regardless of account type. So important to be aware of what the tax bracket is of the beneficiary receiving it. So any qualified account in IRA, 401k would be taxed.

So if that’s being passed on, the beneficiary would want to be in a lower tax bracket. Any Roth accounts obviously is tax -free, so a beneficiary in a high tax bracket could receive it. And then a taxable account or an IRA are the best that could be considered to be gifted to a charity or given to charity at the time of death because that would all be completely tax -free.

Interesting. So if someone’s above the $11 .7 million exemption, potentially they’re paying anything above that, they’re paying the 40% tax plus their beneficiaries are going to pay taxes at whatever individual rates the beneficiaries are taxed.

So potentially two taxes, but if your state’s below $11 .7 million, then there’s no federal inheritance tax, it’s just the beneficiaries that pay the tax at their individual rates, depending on if it’s a Roth, zero tax, if it’s an IRA, it’s their tax bracket, etc.

There are state taxes, obviously, that fall into consideration depending on what state you live in. Some states have zero tax when you pass. Some states do have an inheritance tax when you pass. So that’s where lifetime gifting can sometimes become a more of a priority, which we’ll talk about a little bit later.

Thanks for walking us through that, Jameson. Third question we have is team, we have real estate, a business, assets that are valued above the exemption limit. So, what happens if I pass and I’m above the exemption limits, but these assets are not liquid?

When do I owe? How do I pay it, etc.? Jameson, give us some considerations for those that own real estate or a business that’s valued over the exemption limit. Yeah. So, the estate’s always going to be responsible for any taxes or real estate, for example, if there’s anything that needs to be done to the house, that’s the estate’s responsibility, not the beneficiary.

So, important to make sure that real estate’s a good example, that there’s cash in the estate to pay any fees or property taxes or life insurance can come into play. So, that at death, life insurance would go into the estate and could fund any of these needs.

All right. So, those are our three common questions that we receive and three common things that we advise on. I happen to answer any questions you have. So, in general, your estate plan should be reviewed.

What are the best practices for someone’s estate plan? How often should they review it? Why should they review it, etc.? Yeah. So, generally, every three to five years, it should be reviewed just like you said, for tax changes or any beneficiary changes.

One example is maybe you have young kids and you have parents as the executor of the estate. What happens if the parents get too old that you don’t want them making those decisions? So, being able to upkeep who you have as trustee, executor, guardian of kids, generally every three to five years is good to review.

Excellent. We’re happy to answer any questions you have around estate planning. Thanks for watching. We’ll catch you in the next video.

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