Estate Planning in the Tax Uncertainty
of 2023 and Beyond
-
AUTHOR
Harrison Burge -
PUBLISHED
September 15, 2022
Looking to establish an estate plan, but finding that imminent — and highly daunting — tax changes are holding you back from taking action? Now is NOT the time for procrastination. Read on to better educate yourself and discover why you should act TODAY…
Are you planning ahead to set up your family for prosperity after you’re gone? And are you worried about how imminent tax changes will take a big bite out of your assets?
The momentum for a dramatic shift in tax policy is here.
Plus, there’s a big difference between previous tax hikes and this next round (or rounds) of tax increases: Politicians want — no, scratch that, they DEMAND — retroactive tax changes to “make up” for the perceived free pass higher income earners got during the past four years.
In this article, we’ll first provide an overview of estate taxes, so you’re familiar with the basics. Then, we’ll examine the environment that we find ourselves in. We’ll discuss why you need to look years or even decades ahead, and plan accordingly to LEGALLY minimize taxes on your estate. And we’ll conclude with some solutions to consider.
Now, more than ever, is a time to understand how to protect your assets. And then don’t delay in doing so. The earlier you take action, the better off you will be. That means, ultimately, the better off your family will be also.
You’ve worked hard to earn what’s yours. You’ve provided value to the world. You’ve been responsible. You’ve invested wisely.
And after you’re gone, you want your family, friends, a religious organization or charity — whomever you decide — to enjoy this wealth and live a good life.
Here are some solutions to LEGALLY keep this wealth out of greedy politicians and bureaucrats’ hands…
Don’t take this as financial or retirement advice. In this article, we’ll discuss potential taxation risks and present information to help you in your estate planning.
But we’re not certified financial planners or retirement advisors, and we don’t know anything about your unique financial situation. None of the information below should therefore be taken as financial advice.
Our goal here is to better inform you. To make your bullet-proof estate plan a reality, you’ll need to consult with a trusted tax planning professional.
Military strategist and Prussian field marshal Helmuth von Moltke (the Elder) famously wrote:
“No battle plan ever survives contact with the enemy.”
Or, less eloquently, Mike Tyson said:
“Everyone has a plan ‘til they get punched in the mouth.”
The battlefield (i.e. the financial, economic and political landscape) is abruptly changing. It’s time to recognize this fact, adapt, and alter your battle plan accordingly.
Over the last 40 years, for example, interest rates have been on an overall downward trajectory. What are the chances that interest rates continue to fall for the next 40 years? What are the chances that, with rates close to 0%, the entire world will defy basic economic principles and go negative in the decades ahead?
But, then again, defying basic principles is in-vogue at the moment…
Intellectual dissent is not tolerated. Marxism is running amok. Money has transformed into Monopoly tokens. Trillion dollar annual deficits are commonplace. And the governmental fangs are out for your hard-earned money and assets.
In other words, enemy contact has been made, and their punches are flying in with greater fury.
And now they want to increase the onslaught… In the form of a greater attack on estates, also known as the “death tax.”
That’s right — after you take your last breath, the government is there, ready to seize a portion of your assets. You’re literally taxed for dying.
And when you’re gone, whoever receives your assets gets to experience the joy of handing over a big chunk of money to the government.
The death tax is one of the most — if not THE most — revolting taxes ever invented.
Even after you’ve paid taxes on your earnings, investments, and total lifetime spending, the grubby fingers of the government still want more from you after death.
The death tax is an outdated, 19th century idea that has no place in the modern world.
Still, here we find ourselves. And again, the federal government is not satisfied with the current confiscatory rate…
Don’t forget about estate taxes at the state level
In some cases, the federal government isn’t the only one after your estate.
A handful of states levy an estate tax, too. New York, in particular, has a highly draconian estate tax.
If you’re currently living in one of these not-too-friendly estate tax states, there’s a simple solution: Move. For more information on estate taxes at the state level, including a list of states where you should NOT die, click here.
Maintaining control of your property is a foundational pillar of personal liberty… even after you’re gone.
As you depart this earth, there’s no more powerful statement of your freedom than passing on your assets to whom YOU see fit: Your children. Grandchildren. Extended family members. Friends. Your church, synagogue or mosque, or even charities that you believe in.
… Anyone except government bureaucrats and politicians.
Your key to doing so: A well-developed, well-defined estate plan.
A robust estate plan not only lets you pass on assets at your discretion, but you can control the timing of the distributions, too.
Maybe you had children later in life, so they may still be minors when you pass away.
Or maybe you want the assets to go to your grandchildren, who are still minors.
Or maybe you have adult children, but they lack the financial sophistication to receive a 7-figure or 8-figure sum right away. These assets could go the way of a powerball winner’s instant fortune; up in smoke.
Or, as we alluded to above, maybe the political tide is shifting…
An increasingly draconian government is out there sniffing out any wealth it can. So, if your estate is above the exemption threshold, without proper planning, your beneficiaries could receive only a fraction of your assets’ current value.
Taxes on charitable giving and gifts, and your lifetime exemption
Consider the inextricable linkage between gifts and your estate…
First, realize that the US government gives taxpayers a break on some donations. Such gifts, made to official, 501(c)3 charities, are generally tax-free.
Also, you’re allowed to give up to $15,000 (per person or entity) to anyone you want, every year, without penalty.
So, in 2023, you could dole out $5,000 to each of your five nieces and nephews, $10,000 to an unemployed friend, and $15,000 to your neighbor, whose restaurant was shut down by government edict in 2020.
That’s a total of $50,000 in giving. And there are no tax or long-term estate implications. You don’t even have to notify the IRS about these gifts.
But things change when you cross the $15,000 threshold (to any single person per year).
Originally, the gift tax and estate tax were separate taxes, with different exemptions and tax rates. (See the table below.)
However, in 2011, the exemption amounts and the applicable tax rates of both taxes converged. The two systems became one. One affects the other.
In 2021, between gifts and your estate, your lifetime exemption amount was $11.7 million ($23.4 million for married couples). Notably, when you give away more than $15,000 per year to any single person, that translates into less tax-free inheritance you can pass down to your heirs when you die.
The bottom line? If you give away too much during your lifetime, you won’t be able to leave your assets tax-free to your kids and grandkids when you pass away.
For example, let’s say you give $815,000 to your son this year. You will need to report the $800,000 ($815,000 – $15,000) portion of it on Form 709.
There is no tax to pay. The reporting is done to show the IRS that you are using up your lifetime exemption.
As a result, your lifetime exemption will go down by $800,000 to $10.9 million.
So, $10.9 million is how much asset value you were able to leave to your heirs tax-free (if you passed away in 2021, and without making any other reportable gifts).
In terms of taxes, the past few years have been a wonderful era.
We saw a decrease in the top corporate tax rate from 35% to 21%. Personal tax rates — on both income and capital gains — were at the lowest level in decades.
And well before the tax environment turned much more favorable in 2018, estate taxes were incrementally improving for nearly 20 years.
In 2000 and 2001, both the estate tax and gift exemptions were only $675,000 — that’s all you could give away tax-free. Or how much in cash, stocks, real estate, retirement savings, etc. you could leave tax-free when you passed away. Above $675,000, gifts and estates were subject to a 55% tax rate.
Then in 2011, gift and estate tax exemptions converged. And the exemption amount nearly doubled from the year before, from $3.5 million to $5 million.
But wait, it got even better…
In 2018, due to the Tax Cuts and Jobs Act, the estate and gift tax exemption amount increased to $11.7 million for individuals. And for married couples, the amount you and your spouse could exclude from estate taxation increased to $23.4 million.
Anything above these numbers started being taxed at a flat 40%.
Not many Americans leave more than $23.4 million in assets when they die. So, the entire value of most people’s assets effectively became tax-free.
But times, they are a-changin’ today…
Because the Tax Cuts and Jobs Act only temporarily raised the estate and gift tax exemption threshold.
In 2026 — or perhaps even sooner — the exemption amount will automatically revert back to $5 million.
Estate and Gift Exemption Table
| Year | Estate Exemption Amount | Gift Exemption Amount | Top Gift and Estate Tax Rate |
| 2000 | $675,000 | $675,000 | 55% |
| 2001 | $675,000 | $675,000 | 55% |
| 2002 | $1 million | $1 million | 50% |
| 2003 | $1 million | $1 million | 49% |
| 2004 | $1.5 million | $1 million | 48% |
| 2005 | $1.5 million | $1 million | 47% |
| 2006 | $2 million | $1 million | 46% |
| 2007 | $2 million | $1 million | 45% |
| 2008 | $2 million | $1 million | 45% |
| 2009 | $3.5 million | $1 million | 45% |
| 2010 | repealed | $1 million | 35% |
| In 2011, Gift and Estate tax exemptions converged | |||
| 2011 | $5.00 million | 35% | |
| 2012 | $5.12 million | 35% | |
| 2013 | $5.25 million | 40% | |
| 2014 | $5.34 million | 40% | |
| 2015 | $5.43 million | 40% | |
| 2016 | $5.45 million | 40% | |
| 2017 | $5.49 million | 40% | |
| 2018 | $11.18 million | 40% | |
| 2019 | $11.40 million | 40% | |
| 2020 | $11.58 million | 40% | |
| 2021 | $11.70 million | 40% | |
How to lock in the current $11.7 million ($23.4 million for couples) estate tax exemption
Yes, it’s possible to take advantage of the historically high $11.7 million estate tax exemption, which, again, is $23.4 million for married couples.
To do so, you’ll need to set up a trust. And then once established, you’ll have to make a gift to it.
But you cannot set up just any kind of trust. In a recent Sovereign Confidential report, our flagship subscription service, we detailed exactly how you can reduce your estate tax AND protect your assets with this specific type of trust and strategy.
At first, a reduction from an estate tax exemption of $11.7 million to $5 million doesn’t sound too bad. When you’re gone, $5 million of assets can still be passed tax-free to your children, grandchildren, family, church, favorite charity, etc.
But don’t discount two factors…
The first is inflation.
The US federal government should apologize to drunken sailors everywhere. Because at this rate, politicians and bureaucrats cannot spend money fast enough. But to do so, they’re not spending out of a savings account or drawing down from a trust fund.
Instead, the Federal Reserve is conjuring up trillions of dollars out of thin air. And with all that freshly printed currency circulating, it’s inevitable that the dollar will lose value, dollar holders will lose purchasing power and asset values will inflate.
If the Fed keeps up this current pace, your $3-4 million in assets could be worth $5 million in a few years’ time. Congratulations — you’ll be on the cusp of owing 40% on every dollar you own above $5 million.
But inflation won’t be your only nemesis in the coming years…
The second threat is the government’s unrestrained fiscal policy.
There’s a good chance that the exemption threshold could decrease. To $2.5 million, perhaps? Sure. To $1 million? Yep. If officials really want to put the heat on so-called “wealthy” estates, they could even crank down the threshold to the 2000-2001 level of $675,000. Or maybe even lower…
By the time they’re done, that old 2000-2001 estate tax of 55% could look quite favorable. If the government went full Bolshevik, estate tax rates could increase to 80%, even 90%.
(Think 90% estate tax rates are impossible? Think again. In 2019, lead Bolshevik, Representative Alexandria Ocasio-Cortez, advocated for a top marginal income tax rate of 70%. The Washington Post then argued that a 70% tax rate is “not so radical.” Plus, there have been calls to return to a top tax rate of 90%. So, a 90% estate tax rate — completely plausible.)
At an 80-90% estate tax rate, anyone who has amassed a decent amount of wealth would basically hand over all but a few thousand dollars to the government.
And that’s just the federal estate tax bill. Die in the wrong state, and your descendants would have another large tax bill. It’s even possible that they would have to dig into their own pockets to pay the estate tax bill.
But this is all preventable.
To ensure that your assets go where you direct — and that your wealth doesn’t become a burden unto your estate beneficiaries — now, more than ever, you need to plan ahead. Here are a few solutions to consider.
Take Back Control Of Your Retirement Savings Today.
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In this report…
Yes, estate taxes are changing in the next few years.
And the government could go full-on draconian — with a lower estate tax exemption threshold, even higher estate taxes, or possibly a combination of the two.
But now’s NOT the time to throw up your arms and bury your head in the sand. At Sovereign Man, that’s not how we approach problems (and especially not emerging threats).
Instead, start by first changing your mindset…
Despite the bad news, there are logical, rational steps you can take to gain back control. YOU are still in charge of your assets — in life and in death.
Plus, these are asymmetric opportunities — big upside, little (if any) downside — to take advantage of.
Above, we already noted that you can give up to $15,000 each year (per person) to as many people as you want.
This is called your annual gift exclusion.
Gifting up to $15,000 this way means that you won’t have any tax or reporting consequences.
Also notable: These $15,000 gifts do NOT subtract from your lifetime gift exemption.
Let’s say that you want to take care of your two children and four grandchildren right now…
You can start giving $15,000 per year to both of your children. If both are married, that’s another $15,000 that you can give to your children’s spouses. So, you’re up to $60,000 per year.
Add your four grandchildren into the mix. That’s another $60,000 per year, for a subtotal of $120,000.
Plus, your spouse can also give away $120,000. Your annual grand total for gifting is now up to $240,000… without needing to report a dime to the IRS.
Execute this strategy year after year, and over 20 years, you and your spouse can give away $4.8 million (20*$240,000) to your family — a real fortune — without filing a single IRS form, and without tapping into your lifetime exemption amount.
You have plenty of gifting options available: Direct cash payments, money wired to their bank accounts, stock grants, equity stakes in your business, etc. You can also gift a car, boat or some other asset that’s worth up to $15,000.
If you’d like to establish a legal structure for gifting, that’s permissible, too.
Form an LLC that holds your assets, and then gift your children and grandchildren $15,000 worth of interest from the LLC every year.
Or maybe you’d prefer another, more robust legal structure for your estate…l
If you’d like to have even more control over your estate planning, then consider a trust.
People incorrectly think that a trust is similar to a corporation or LLC.
But unlike these business structures, a trust doesn’t have owners or shareholders. Instead, a trust is simply a widely used legal arrangement between several parties:
An estate planning attorney can help you create a solid structure that meets your specific needs.
And once you have a trust in place, you, your children and/or grandchildren will receive several benefits:
Aside from the coming tax changes that we know about and those we expect (highlighted above), Congress could even pass retroactive estate tax legislation.
We’re not making this stuff up.
Check out the “Sensible Taxation and Equity Promotion” Act of 2021, or STEP, for short.
If passed, STEP would subject certain transfers into trusts to immediate unrealized capital gains taxes. And although it was introduced in late March 2021, they want to make this rule enacted RETROACTIVELY as of January 1st of 2021.
Yes — Congress wants to make like Marty McFly and travel back in time. Only in this time traveling episode, they’re doing so to steal your money.
We won’t venture to guess as to whether STEP will be passed in 2021 or not. But if not, another version of STEP — maybe even more insidious — could pass in 2022.
For example, let’s say that you set up an estate plan in December 2021. And then in June 2022, Congress passes a new estate tax that retroactively goes into effect on January 1, 2022. No worries here. You’re unaffected because you took action.
But if you waited until January 2022 to set up that estate plan, then you would be subject to that new, higher tax.
Time, truly, is of the essence.
Even better: Combine some or all of these solutions
Of course, these solutions are not mutually exclusive.
To optimize your estate planning (and minimize your descendants’ taxes owed on your estate), you can combine two, three or all four of the solutions discussed in this article.
The federal government’s estate tax is not the only estate tax to worry about.
You should choose where you die very carefully, as certain states levy an estate tax, too.
For example, New York state has an estate tax exemption of $5.93 million.
Taxable gifts made within three years prior to your death are included as part of your estate, and tax rates range from 3.06% to 16%.
Plus, New York levies a “cliff tax.” If the value of your estate is more than 105% of the current exemption ($6.23 million, in 2021), the exemption disappears. That’s correct — if you’re above this 105% threshold, your entire estate is subject to New York’s draconian estate tax.
Unless you want your estate to be frittered away, here are states you SHOULD NOT retire in…
Sovereign Man’s List of States You Should NOT Retire In
| State/Jurisdiction | Estate Tax Exemption Amount | Lowest Marginal Estate Tax Rate | Highest Marginal Estate Tax Rate |
|---|---|---|---|
| Connecticut | $7.10 million | 10.8% | 12% |
| District of Columbia | $4.00 million | 12% | 16% |
| Hawaii | $5.49 million | 10% | 20% |
| Illinois | $4.00 million | 0.8% | 16% |
| Maine | $5.87 million | 8% | 12% |
| Maryland | $5.00 million | 0.8% | 16% |
| Massachusetts | $1.00 million | 0.8% | 16% |
| Minnesota | $3.00 million | 13% | 16% |
| New York | $5.93 million | 3.06% | 16% |
| Oregon | $1.00 million | 10% | 16% |
| Rhode Island | $1.595 million | 0.8% | 16% |
| Vermont | $5.00 million | 16% | 16% |
| Washington | $2.193 million | 10% | 20% |
If your state is not on the list above, there’s no need to worry about estate taxes at the state level.
So, if you didn’t already need another reason to leave New York for Florida or Texas, its estate tax might be another factor pushing you out.
Check out our free article on the lowest taxed states in the US
Earlier in 2021, we published an article on states with no or low income tax rates.
And if you’re interested in not only paying low income tax rates, but also homeschooling your children without state intervention, we created an index of the top 10 states for both factors. That index is also included in the article.
Again, you can check out the article here.
Admittedly, this solution is not for everyone.
And we should stress that renouncing your US citizenship should be a rational, well-planned decision — just like your retirement, tax or estate planning, investment strategy or any of your business dealings.
You will need to divorce yourself from the mindset that you’re 100% defined by a little booklet with some stamped pages inside. If it makes sense to pursue a second citizenship and then renounce your US one, then so be it.
If you’re considering renouncing, then keep two important points in mind…
First, you need to secure a second citizenship before renouncing your US one.
The theoretical idea of being a stateless person might have some appeal. But in reality, it’s just impractical. Trust us. Find a home abroad, obtain citizenship through legal means, and then renounce. (For more on second citizenships, see the box below.)
You can acquire a second citizenship (by investment) starting from only $100K
Citizenship by Investment (CBI) — or, in most cases, Citizenship by Donation — allows you to invest or donate money in exchange for an alternative citizenship and passport. In many cases, you can have a passport in your hands within a few months, and don’t need to travel abroad to acquire one.
For example, if you are willing to part with $850,000 or more, you can snag a prized citizenship from a European Union country.
That opens you up to nearly the entire European continent — to live, travel, study, work, etc.
But you don’t need to shell out nearly $1 million for a second passport.
In the Caribbean, CBI programs’ contributions start at $100,000 for single applicants.
To calculate the exact cost of Caribbean Citizenship by Investment for yourself and any dependents, click this link. There, you can compare programs side-by-side, see what’s right for you (and your family, if applicable), and even get connected with one of our trusted service providers.
Second, realize that you may be subject to the US exit tax.
Uncle Sam applies the exit tax because the government wants a portion of capital gains that you have not yet realized. So, if your home, real estate, stocks, and other investments have appreciated since you bought them, the government will demand its share of your assets.
But the exit tax may only apply if you are a “covered expatriate”, defined as someone:
The IRS will calculate the exit tax as if you sold all your appreciated assets one day before your expatriation date. (You don’t have to actually sell the assets, but you may have to pay the tax as if you were selling.)
Even so, you may not be subject to actually paying the exit tax.
That’s because there’s an exemption. In 2021, the first $744,000 of deemed capital gains are tax-free. (Each year, the amount is indexed with inflation, so it will increase in 2022.)
Again, remember there’s a $11.7 million estate tax exemption. So, how can only a $744,000 exemption be more favorable than an $11.7 million one?
Well, the $11.7 million exemption for the estate tax (which is scheduled to decrease to around $6 million in 2026) goes against the total value of your assets. But the $744,000 exemption for the exit tax applies only to the capital gains portion of your assets.
You may be worth many millions of dollars. But if you don’t have much unrealized capital gains, then you may have no exit tax when you renounce your US citizenship.
Information on estate planning, foreign residencies and more - all included in a Sovereign Confidential membership
These are only a few estate planning solutions that we can share for free.
To unlock more information and step-by-step guidance on estate planning, legal tax reduction strategies, obtaining foreign residencies and more, check out Sovereign Confidential, our flagship subscription service.
Not to be hyperbolic, but imagine we’re standing in front of your building — and it’s clear that it could be seconds away from catching fire.
And you’re being offered fire insurance on it. Would you take it?
We already know that in 2026, the estate tax exemption amount will automatically revert back to $5 million. And before then, tax-hungry politicians could lower that threshold. Or they could increase the estate tax from 40% to much higher. Or both.
Sure, there’s no guarantee that dramatic tax changes are coming. But it sure looks that way. The tax and spend regime is ramping up to another level. The match is already lit, and again, the building could be on fire any minute.
Regardless of what’s ahead of us, there’s no downside to having robust asset protection.
The smart thing to do is to establish a long-term asset protection vehicle. That way, YOU are in charge. YOU can make decisions consistent with your wishes to ensure the value is, and ends up, where it’s intended.
We encourage you to educate yourself, based on where you live and what assets you have.
Plan in advance, and then make your estate plan a reality… TODAY.
Take Back Control Of Your Retirement Savings Today.
Don’t let the stock market hold your retirement savings hostage – discover two powerful tools to help you take back control and invest in REAL assets in 2022!
In this report…
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