2 Numbers You Need to Know

2 Numbers You Need to Know

February 15, 2021 All Articles Legacy Planning Taxes 0
2 Numbers

$400,000 and $3.5 Million

A few weeks ago, we were working with a family that could have severe estate tax issues in the future. When this risk was first exposed, the immediate response was this: We have until 2026 before anything can be changed, right?

Unfortunately, this is a misconception. The tax code can be changed at any time. It could even change for 2020 and retroactively. There are a number of reasons why there is a very slim chance of this happening.  However, and this is a BIG however, we could very likely see changes that will take place for 2021.

And this is where those magic numbers come in. If you make more than $400,000 of income or own more than $3.5 million of assets, you better at least plan for it. This is not saying it will happen or that others will not experience a tax increase. There is no legislation yet. Still, we have a lot of clues as to what we could see happen.

Take a look at this…

Tom is a rancher. He has built a $20 million dollar legacy with his ranch, but $17 million dollars of that is land. If he dies today, his family may owe around $2.3 million dollars of federal estate tax.

Now, let’s make one change. What if the federal estate tax exemption is $3.5 million? His family’s tax bill now goes to over $6.5 million dollars. We’re not done yet though….

There is another item on the docket to be changed. It is being proposed by several members of Congress to take away the step-to in cost basis. Let’s assume Tom paid $1 million for his ranch land and his family is forced to sell the ranch to pay taxes and keep what’s left intact. At the current top capital gains rate of 23.8%, this would mean a tax bill of almost $3.8 million dollars.

If these two changes happen, Tom’s family will send approximately half of his $20 million dollar legacy to Uncle Sam! And, truth be told, this isn’t the worst of it. If there is debt on the property, his family could owe money.

Too many people have held off with their estate planning. Why? Maybe it’s issues within the family that makes it too hard to make these decisions. Maybe there is the belief they have to give up these assets to get something done.  Perhaps they think they can always wait until the pendulum in Washington swings back to the other side.


Decisions can be made with strings and flexibility. You don’t have to cut strings with everything you have built. COVID-19 taught us that life is too short and times are changing and things may never go back to the way they were.

It may be now or never.

We didn’t even talk about income taxes, which is unfortunate. It may be just as important or more important to plan for this. The point, no matter, is this: do something now or pay later. And remember, we are here to help when you’re ready!


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