In this edition of M&B Monthly…
• Letter from the President: Federal Estate Tax Updates and Gifting Suggestions
• Upcoming Estate Planning Seminars
• A little about us…Employee Profile with Justin Martin (and his family’s famous Tinga de Pollo recipe)
• Do you know someone who has been putting off making a will?
Letter from the President, Justin Martin
Federal Estate Tax Updates and Gifting Suggestions
When we sat down to make a list of what clients need to know this year, one item stood out: dramatic updates are expected to the federal estate tax exemption and the gift tax exclusion. This newsletter will unpack anticipated changes, provide some gifting suggestions on both the federal and state level, and highlight a few of the collective benefits of gifting.
Change on the Horizon
Since the Tax Cuts and Jobs Act of 2017, the federal estate tax and lifetime gift tax exemptions have reached historic highs.
1. Today, the value of assets at death in excess of $11.7M for individuals or $23.4M for married couples is taxed at a rate of 40%. Because the same exemption amounts are tied to lifetime gifts, this means that a single individual could gift $11.7M tax free, and a married couple could gift a combined $23.4M.
These are the highest exemptions in the history of the estate and gift tax, but they expire in 2025, when the exemption limit is set to automatically fall back to the previous $5M per individual (closer to $6M if adjusted for inflation).
2. Based on the Biden campaign platform, some also see a real possibility in the administration moving to reduce the exemption even sooner, with the exemptions decreasing to $3.5M per person and the tax rate increasing to 45%, among other adjustments.
3. There has even been discussion about making the tax code reform retroactive.
4. With the window of opportunity closing, it’s uncertain whether it will ever open again. Depending on age and asset level, some are in a “wait and see” position before gifting some of their assets to loved ones. Others, however, are in a “use it or lose it” position to leverage the historically high gift tax exemption.
Use It or Lose It
To “use it or lose it,” one must gift more than the amount to which the exemption is eventually reduced. For example, if a gift of $7M is made under current law before the exemption is reduced to $5M, then this individual would have “used” $2M of the opportunity, which is the amount in excess of the reduced exemption. Any amount under $5M (or whatever figure this is potentially lowered further to) would fail to take advantage of the current exemption amount. As such, the open window opportunity is best utilized by large estates and individuals who can readily identify the assets that they’ll never spend in their lifetime.
Gifting in Oregon
While federal gifts made within three years before death are included in the estate, Oregon has no such rule. In fact, Oregon has no gift tax at all. Gifting can be an estate planning strategy that reduces the eventual estate amount that is subject to tax in Oregon. For example, consider Steve and Grace, who are both in their 70s and have two grown children, each with children of their own. At a combined $10M, The couple’s estate today is less than the current exemption of $23.4M for a married couple and less than the planned reduced exemption of $12M for a married couple. However, Steve and Grace don’t even come close to spending the income and growth from their assets. With the real estate values growing along with their retirement accounts and other investments, their estate could be $20M in 10–15 years, with some scenarios even higher. For Steve and Grace, gifting this year would not only remove the value of the gift from the estate but also their invested growth. If Steve and Grace decide to gift to their children and grandchildren, they would be able to reduce their eventual estate tax by 40% of the amount gift, plus its growth, under current law, and reduce the estate subject to Oregon estate tax, an additional savings of 10 – 16%, not counting deductions, if any.”
Peace of Mind
In addition to the tax benefits of gifting, less talked about is the familial and emotional benefits for those involved. When a patriarch or matriarch identifies what assets they will need to live out the rest of their days in comfort and what assets they can start gifting, the process draws the family unit closer together. Parents and grandparents are able to teach their children, grandchildren, and other beneficiaries while sharing stories of their own about investing and mistakes they’ve made with money. The group starts having more heartfelt conversations. Everyone starts listening to each other and hearing one another in new ways. In this process, an unmistakably joy and transformation arises. The joy for estate holders comes from seeing their gifts bear fruit during their lifetimes, as opposed to a last will and testament that they will not be around to see. They take an active part of their legacies. They are around to mentor, coach, answer questions, and explain. More than anything, it gives them peace of mind in knowing that they are taking care of affairs, stewarding their families and other beneficiaries, and planning it right. Words like “joy” and “transformation” might seem out of place in an article on the so-called “death tax,” perhaps because this aspirational aspect of the process does not get a lot of press. Yet, time and time again, we see the positive results. When people start gifting, the effects this has on families and other beneficiaries is real and profound—and it’s special for us to be part of that experience. In the end, as I have said before, estate planning is actually a discussion about how we live, and lifetime giving is an experience not to be missed.
In the coming articles, we’ll highlight two common tools to maintain some control and access to assets already gifted (IDGT & SLAT). If your window of opportunity is closing soon, give us a call.
1. Darien B. Jacobson, Brian G. Raub & Barry W. Johnson, “The Estate Tax: Ninety Years and Counting,” Internal Revenue Service
2. 115th Congress, H.R. 1 (2017)
3. Jacqueline L. Messler, “Act Now – Estate Tax Planning Under the Biden Administration,” National Law Review (January 25, 2021)
4. Mark J. Andres, “Individual Tax Planning Following the November 2020 Elections,” National Law Review (November 25, 2020)
Estate Planning Seminars
Do you have any friends or family members in Oregon who are thinking about writing a will or struggling to get their family members on the same page about finances? Tell your friends about our complimentary introduction to estate planning seminar. It’s online and a casual environment, with online sessions in April, May and June. With a lawyer, participants will:
• Address how wills and trusts work
• Understand the latest updates to the Oregon Estate Tax
• Discover how to reduce tax liability
• Ask any and all questions
Send this link to anyone who needs help with these questions.
Client Experiences with Myatt & Bell, P.C.
“Just what I was hoping for. A straightforward process that was easy on me and got everything done and done quickly.” – Robert, client
A Little About Us…
Employee Profile of Justin Martin
Justin Martin, President & Attorney
Favorite free time activity: connecting with my kids while fishing
Greatest movie of all time: “The Man From Snowy River”
Most rewarding part of estate planning: experiencing and connecting with families
Justin’s Favorite Family Recipe – Tinga de Pollo
• 6 pieces of chicken
• 1 tsp of pepper
• 1 tsp of garlic powder
• 1 1/2 onion
• 5 big cloves of garlic
• 1 can (small) of chipotle
• 3 laurel leaves
• 3 tomatoes
• 1 bag of tostadas
• 2 tbsp oil
• 1 avocado
1. Wash the chicken, take the skin off. Marinate with pepper, garlic powder.
2. Boil the chicken in 3 cups of water with 3 garlic cloves and a half of onion for about 40 min. Once it is cooked but not hot, mince the chicken. Keep the chicken stock.
3. Sauce: In a blender put 3 tomatoes, 2 garlic cloves and 1 can of chipotle. Blend together. Salt to taste.
4. Cut 1 onion into strips. Shop the green pepper. Fry the onion and green pepper till some caramelization. Then add the sauce, laurel leaves. Cook together for about 5 minutes constantly mixing. Then add the chicken and cook for about 5 minutes constantly mixing. Add some of the chicken stock if it gets too dry. Add salt to taste.
5. Put chicken on the tostadas and avocado slices on top. Enjoy!