The Great Shift in Estate Planning: From Estate Tax to Capital Gains

Not so long ago, the wealthy had one worry above them all when it came to planning their wills: the federal estate tax. But times change.

The estate tax is no longer the primary concern of affluent Americans, The Wall Street Journal reports — and for good reason. Recent modifications to federal law are changing the wealthy’s estate planning priorities.

Big Changes to the Federal Estate Tax Mean Big Changes for Estate Planning

Last year, the U.S. Congress enacted a number of welcome changes to the federal estate tax. Chief among them:

  • The maximum estate-and-tax gift rate now stands at 40% (previously, that rate could climb to nearly 50%).
  • Individuals can now claim up to $5 million in exemptions, plus interest. (By comparison, the exemption was just $1.5 million a decade ago.) Adjusted, the current exclusion amount is $5.34 million and expected to go up again in 2015.
  • Married couples can now combine their exemptions (previously, that was only possible if the spouses created a trust).

In short, life is a lot easier for wealthy people who don’t want the government to grab too much of their money when they die. But that doesn’t mean there aren’t savings to be had. There are, in fact — big ones. Namely? Capital gains.

The New Name of the Game: Capital Gains

The Journal goes so far as to say that estate planning’s been turned on its head now, and there’s some truth in that. Previously, circumventing the estate tax sometimes meant turning focus away from capital gains, which used to be less of a concern because they were taxed at a much lower rate.

But in the last year, while the estate tax has become less brutal, the capital gains rate has soared. As the Journal points out, the maximum federal rate on long-term capital gains is two-thirds higher now than it was just two years ago, topping out at 24%.

The moral of the story is that anyone with significant assets could stand to save a lot of money, but only with the right strategy in place. If your estate planning strategy is even one year out of date, you could be making incredibly costly errors in your approach to savings.

If you have questions about how these recent developments might affect your estate, please feel free to call us at Kamper, Estrada & Simmons today. We’re here to help.

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