Posted by As the Biden government announced the details of the tax reform proposal on September 2021, 9, the revision of the inheritance/gift tax exemption will be halved after January 13, 2022. The public is facing "Either use it or lose it (Use It or Lose It)"2 out of 1 choice.
T.L.T.(TheLifeTank.com, American Life Insurance Guide Network) invited columnistsHeather,onBiden Tax ReformThe specific impact of wealth inheritance and inheritance tax under the influence is illustrated by a case.
Before starting the case study, let us briefly introduce inheritance tax and what is inheritance tax.
Inheritance tax is divided intoU.S. Federal Government Estate Tax, And state government inheritance tax.
| 2020/2021 | Scope of expropriation | Collection object | Tax exemption |
| Federal estate tax | Within the United States | Levy on inheritance | $1,170 million |
| State inheritance tax | 13 states | Levy on inheritance | From USD 100 million |
| Inheritance tax | 6 states | Levied on heirs | Unlimited inheritance by husband and wife |
U.S. Federal Estate Tax
The federal estate tax exemption in 2021 is $1170 million, and the spouse has a cumulative total of $2340 million.
In September 2021, the Biden administration announced the details of the tax reform proposal. After this bill takes effect,From January 2022, 1, the federal estate tax will be reduced to a tax exemption of approximately $1 million per person (excluding inflation index weighting).
(Last update January 2022: The tax reform proposal failed to pass.)
State inheritance tax
In addition to the federal-level inheritance tax, in 2020/2021, 12 other states in the United States and the District of Columbia will levy state-level inheritance taxes.
The state-level inheritance tax exemption is usually compared toU.S. Federal Estate TaxThe amount of exemption is much lower.Click the recommended reading below, you can learn about the states and regions where this tax is levied, and the corresponding exemptions.
(>>>Recommended reading: List｜In 2020/2021, which states and regions will impose state-level inheritance taxes?)
State inheritance tax
Also mention inheritance tax by the way.There is no federal inheritance tax. Only some states in the United States levy this inheritance tax on the beneficiaries of inherited estates, such as children.
It is worth noting that the mutual inheritance between husband and wife does not have to pay this inheritance tax.
In 2020/2021, there will still be 6 states levying this tax.Click the recommended reading below to see the specific list.
(>>>Recommended reading: List｜In 2020/2021, which states and regions will impose inheritance tax?)
Biden's tax reform plan and its impact on wealth inheritance
Grandma Zhang takes action... Use It
For example, Grandma Zhang, who lives in New York, invested in many successful companies when she was young, and now holds about $21,700,000 in assets. It is heard that the Biden government tax reform will lower the limit of inheritance/gift exemption from 1170 million. To 500 million U.S. dollars.
Therefore, in 2021, Grandma Zhang gave a total of $11,700,000 in assets to beneficiaries (such as children, grandchildren) in the form of gifts-which just ran out of her lifetime inheritance/gift quota.
At this time, Grandma Zhang still has $10,000,000 in assets left.If Grandma Zhang passed away after the Biden tax reform took effect, that is, after 2022, the federal estate tax she would have to pay is:
$10,000,000 x 40% = $4,000,000
If Grandma Zhang didn’t act... Lose It
If Grandma Zhang is not in 2021, use this $1170 million quota.
On January 2022, 1, the new inheritance/gift tax exemption was launched, and grandma unfortunately passed away after 1.
Let’s do a calculation. Grandma’s estate totals $21,700,000.The exemption amount is adjusted to US$600 million in accordance with the annual inflation target.
At this time, the total taxable inheritance of grandma is:
$21,700,000 – $6,000,000 = $15,700,000
According to the federal tax rate, in the remaining estate of Grandma Zhang, the inheritance tax to be paid is:
$15,700,000 x 40% = $6,280,000
Comparing the figures in the red part, under the influence of Biden’s tax reform plan in September 2021,Grandma Zhang wants to pay the U.S. government $2,280,000 moreInheritance tax.In practice, this huge amount of tax is often arranged by children or heirs.
Article summary
"Either use it quickly or give up",Biden's tax reform plan, Will have a significant impact on the wealth inheritance plan of high-income and high-net-worth families.
Take the situation of Grandma Zhang as an example,Federal estate tax and state estate tax must be paid within 9 months and must be in cash.For the children who are planning to inherit Grandma Zhang’s wealth, it is not very easy to write a cheque of up to $400 million, or even $628 million.
therefore,The core function of life insurance-hedging inheritance tax, It comes in handy.After Grandma Zhang passed away, the life insurance company was able to complete the compensation within one month and provide the child beneficiaries with a cash exemption from income tax and inheritance tax to pay to the government. (End of full text)
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