Although we shot this in 2019, it’s even more relevant today. Right now, the amount of wealth you can pass free of estate tax to your heirs is $11.7M per person. If you’re married, you can pass that amount times two, for a total of $23.4M. Any amount above that is taxed at a rate of 40%.
So if a couple died in 2021 with an estate of $33.4M, the excess over $23.4M ($10M) would be taxed at 40%. This means that, within nine months of your passing, your heirs (we’ll assume they’re your kids) would have to write a check to Uncle Sam for $4M.
What’s got C-Suite Biotech execs talking about this?
Under current law, that $11.7M figure (often called the estate tax ‘coupon’) will drop to around $6M in 2025. So, that same couple, whose heirs only paid $4M in tax on a $33.4M estate in 2021, would have to pay over $8.5M in tax on the same $33.4M in 2025.
However, if the couple ‘gives away’ their $23.4M coupon today by transferring it to a trust (held in a family partnership over which they control), then they’ll preserve the coupon indefinitely. This means that, if the couple died in 2025, even though the estate tax coupon has dropped to $6M, they can pass all $23.4M to their kids free of estate tax.
The caveat: this would only leave $10M for the couple to live on, which may not be enough given their lifestyle.
But for couples with significant excess wealth (wealth they’ll likely never touch), giving away your coupon now can make sense.
By doing so, all the growth on the $23.4M given away will also escape estate tax. If the $23.4M grows at 7% inside the trust, it would grow to ~$46.8M in 10 years, for an additional estate tax savings of ~$9M on the growth alone.
Is there a way to super-size this strategy for Biotech execs? Oh yes, and we cover that in this clip from 2019 (back then, the estate tax coupon was only $22.8M), when we helped a client upsize their $23.4M estate tax coupon to ~$40M.
Enjoy!
Disclaimer: For information purposes only and should not be interpreted as legal, tax or financial advice. Always consult your CPA/tax advisor/attorney (or reach out to us;) to discuss your specific situation. Past performance is no guarantee of future results.
