Does Your Estate Plan Have A Formula Gift Clause?

A formula clause splits the deceased person’s property between their estate and a trust using a simple formula to take advantage of the lifetime estate and gift tax credit. Formula clauses can work well when used in estate plans when property or another asset with an uncertain or changing value is transferred by a gift transfer. Formula gift clauses can limit estate or gift taxes to be paid out of the estate, or by your heirs.

In 2022, the value of an asset that can be transferred free of estate and gift taxes is now $12.06 million per individual, up from $11.7 million in 2021. Anything valued above that amount may be taxed at 30% or more of the value.

How To Add a Formula Clause to Your Estate Plan

An experienced estate planning attorney can advise you on the best way to add a formula clause to your estate plan to protect your heirs and their inheritance.

• To ensure the IRS approves the formula that is used for the gift transfer, it’s important to use a formula clause based on a case that has already been approved by the IRS – and not to use ‘creative accounting’ or outdated clauses. An experienced estate planning attorney can help you add the right formula clause to your gift to protect your spouse or other beneficiaries from burdensome taxes.
• Married couples with a formula clause that was added to their will many years ago should periodically review and update their will and clause with an estate planning attorney so the current value of their assets doesn’t accidentally result in higher taxes.
• In 2026, the lifetime wealth transfer exemptions will return to approximately $5 million if there is not additional legislation. This would require an additional review to your estate plan.
•  Your attorney can add provisions to trusts that increase flexibility based on future federal and state taxes.

Do You Need to Talk to An Oak Brook Estate Planning Attorney?

Planning ahead will provide you with peace of mind today and your loved ones with protection in the future. Families are complicated, and so are estate plans. Each one is different. Talk to the experienced estate planning attorneys at the Estate and Probate Legal Group about how to prepare for today and tomorrow. Call us today at 630-864-5835.

AREAS WE SERVE: Cook, DuPage, Kane, Lake and Will counties