4 Estate Planning Components to be Aware of

3:48 PM, Apr 01, 2021
11:16 AM, May 11, 2021

Estate planning is a formal term for the process through which you and your family plan for the future. Losing a loved one is extremely painful, and not having a plan can make it even worse. With a complete estate plan, what you’re doing is setting yourself and your family up for success so they don’t have to deal with some of the difficulties that arise from not having an sufficient will or estate plan.

Income Tax Rates and Capital Gains Rates:

Planning ahead with some transfers to your children and grandchildren will take assets out of your tax bracket. We have several other options available to discuss, depending on your family structure and financial picture. This plays into the following “step-up in basis,” as your tax liability will depend upon the current income tax brackets and capital gains rate at the time of transfer or sale.

Step up in basis for capital assets to fair market value:

When you sell certain assets, you pay capital gains tax on the difference between what you paid to buy the item and what it is worth at the time you sell it. Your basis is your original purchase price. The current rule is that the basis is stepped up (increased) to the fair market value at your death. For example, if you bought Procter & Gamble stock at $80 a share and died when it is worth $130 a share, the step up in basis allows your beneficiary to sell the stock at $130 without any capital gains tax. This is one of the most far-reaching of the estate planning portions because almost every person and their loved ones own stocks, investments, or real estate, which all fall into this category.

The Estate and Gift Tax Exemption of $11,700,000 per person:

The exemption is the amount of “free money” you may transfer without paying gift or estate tax to the federal government. Every dollar you transfer during your lifetime as a gift or after your death over this exemption is taxed at 40%. This amount is important because anything you decide to give or transfer as a part of your estate plan will be significantly increased by the protections of this tax exemption.


Portability simply means a surviving spouse may use any estate and gift tax exemption that was not used by his or her predeceased spouse. For example, if the exemption is $5,000,000 and the predeceased spouse only used $1,000,000, portability allows the surviving spouse to utilize the unused $4,000,000. While painful that you may have lost a spouse, this enables you to save a substantial amount on tax liability especially while distributing assets in honor of your loved one.

The key to note above any of these specific aspects of estate & tax planning is that any change in your family or financial structure is important to consider and reflect in your estate plan. This includes marriage, divorce, birth, death, a move to a new location, change of job, or increase or decrease in pay and benefits. Much like insurance, while something we tend not to think about until it’s needed, it’s important to communicate any changes that have happened in the last year to your estate planning attorney so that you are fully protected.

BHMK has a team of lawyers dedicated to guiding clients through complex regulatory changes (including those currently proposed). Even if you simply want an experienced lawyer to pick up the phone, listen to your questions, and help you work through how the new changes will impact you personally, we are here for you.

To learn more, visit our website.

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