WHAT DOES IT MEAN WHEN SOMEONE SAYS “INCOME TAX IS THE NEW ESTATE TAX”?

Well, with the tax changes that have occurred over recent years and the compression of the estate tax rate down to 40% on a federal basis, and on a federal basis, the highest income tax rate being 39.6, they’re pretty much the same. So, we can spend more time on income tax planning than we have to on estate tax planning. With our exemptions of $5.49 million per person, there’s probably only one to two percent of the entire US population that has to concern itself with estate tax. We may still have concerns about gift tax, but gift tax really only supports the income tax. So, income tax planning has really become the new estate tax planning.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.