MARK RIEPE: Benjamin Franklin had a lot to say about money. The maxim that "a penny saved is a penny earned"—that's attributed to him. So is the phrase "Time is money." But we’re going to be talking about another one that he wrote on November 13, 1789. It was in a letter to his friend French scientist Jean-Baptiste Le Roy. He wrote, "But in this world, nothing is certain except for death and taxes."[1]
This episode is going to cover both of those topics as I try to decode various issues associated with the estate tax.
I'm Mark Riepe. I head up the Schwab Center for Financial Research, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.
My guest is Austin Jarvis. He’s our estate-planning and tax expert. Austin analyzes and provides insights on complex estate, gift, and trust planning; advanced charitable strategies; business succession; and executive compensation.
Estate planning is a confusing topic, and to make matters worse, it’s a topic that, let’s face it, most of us don’t want to talk about even if it wasn’t confusing. Austin is going to go over the fundamentals and then get into some other important considerations, including some changes in laws that are coming up.
MARK: Austin, let's start out by talking about—what are some of the stakes involved with estate planning? Maybe could you give us some examples of what typically happens to someone's estate after they're gone if they've got no estate plan in place?
AUSTIN JARVIS: So that's a really great question. If you die without having created a will, you're basically said to have died intestate. When that happens, your state goes to probate court, but the rules there are governed by your state's intestacy laws on who gets what. So really think about this. If you die without a will, and your situation doesn't conform to just the average person—so I like to say there are lot of people out there who have really great friends that have become their family, but they might not have a good relationship with their actual blood family—well, if you die without a will, normally your assets are going to go to your family members because that's what the average person, the state thinks that they want. So when I'm talking to somebody about the importance of estate planning, it's basically saying, "Hey, don't you want a personalized estate plan? Don't you want to have the final say in what happens to your assets when you pass away instead of leaving it up to your state's laws?" Because most of the time—I would say greater than 90 % of the time—those state laws aren't going to be what you would have chosen for yourself.
MARK: Yeah, and I think that's an excellent point. And there are also some tax issues involved as well. So tell me a little bit about those.
AUSTIN: So for taxation, there's some really good news for 99.8% of us. And that is basically what's known as stepped-up basis. So let's just say that you purchased a home back in 1990, and it was worth $100,000. If you were to pass away today, and that house was worth $500,000, well, that house gets stepped-up cost basis to that $500,000 level and then gets transferred to your heirs—who if they wanted to immediately sell that house, they aren't going to be subject to that $400,000 of appreciated gain because that's been wiped out at your death. So this is really, really important for people to understand—is that the law basically says most of the assets, 99% of the assets you receive, are going to have that stepped-up basis so that your heirs aren't hit with basically a really large tax burden if they start to sell those assets. Because sometimes you need to raise liquidity. You've got burial costs. You've got other things that you have to take care of.
But I said 99.8%, and there's a reason why I said that. It's because there is an actual trade-off here. The federal government basically says, "We're giving you this stepped-up basis, but that means that every estate is subject to the federal estate tax." So what does that mean? Every estate, basically, you can have $13.61 million worth of assets transferred to your heirs of your choice without incurring a nickel of estate tax. Now, the Tax Policy Center says that currently only about 0.2% of estates are actually subject to the estate tax. So this is really not even the 1%. We're talking about the 0.2%—the richest of the rich—because there's a lot of strategies out there that you can use to even if you have a $20 million estate, there's strategies that you can basically bump your net estate down. If you do give more than $13.6 million as an individual or $27.22 million as a married couple in 2024, you're subject to the federal estate tax. And that means that for every dollar you're giving above that, you're basically subject to a 40% estate tax rate. So this is a big deal.
And what's even bigger is that—we're going to talk about this in a little bit—but there is a time horizon, January 1, 2026, where the federal estate tax exemption is basically going to get cut in half from what it is right now. So there are going to be a lot more estates subject to the estate tax, and there's going to be a lot of people who haven't planned for it.
MARK: Yeah, that's an excellent point, and you're right, we'll get to that later. But before we get there, I wanted to kind of level set a little bit and make sure listeners know about some of the key foundational documents that pretty much everybody needs to have. And on my list here, document number one is a will. So tell me a little bit about that, and what is it, and why is it so important?
AUSTIN: Sure. So here at Schwab, we really believe that no matter your age, your health, your level of wealth, you should have basic estate-planning documents. We call them the foundational estate planning documents. And those are going be four to five, depending on your individual circumstances.
But as you mentioned, a will is the foundation—the absolute foundation. Everyone should have a will. So a will is basically your personalized estate plan that says who gets what when I pass away. And that's very, very important. This also is important for married couples who have children. Now, no one likes to think about what could happen if there's a simultaneous death, but if there is, a will allows you to appoint a guardian—someone who will take care of your minor children until they become of age. So a will is basically your overall foundational document. Everyone should have one, no matter if you do use what I'm going to talk about next, which is a revocable trust.
So a revocable trust is really a will substitute. They're very popular in states that have high probate costs or if your goal is, "I don't want, you know, Miss Kravitz looking at the public record to find out what I transferred to my heirs when I passed away," a revocable trust basically keeps that privacy intact. All the transfers occur within the, basically, the four corners of that document. It doesn't go into the public record like probate does. Even if you do have a revocable trust, you are also going to need a will because not everything that you own can be owned by a revocable trust. So you're going to have what's known as a pour-over will. Anything your trust didn't own when you die is going to be poured over into that trust through your pour over will.
MARK: Austin, I think we've done about 80 episodes, and I think you're the first person to make a Bewitched reference on this show. So for those who don't remember the show Bewitched—Miss Kravitz was this nosy next-door neighbor who was always getting into the business, as they say, of the Stephens family. So that's the kind of value-add we provide you on Financial Decoder.
Next up is what I call—well, I call it sort of the "what should you do now" list, but you've got a much better name for that particular document. So tell me about that.
AUSTIN: So the next document isn't even a legal document. It's not one that you have to go to an attorney to have prepared. We call it an "I Love You" letter. So this is something that you literally just sit down and write out and put in a safe place. A lot of times this is going to basically be for someone who says, "I'm going to leave certain assets to a certain child or grandchild," and you explain the reasons why. Maybe there's sentimental value, because unfortunately, when someone dies, there can be expectations from different heirs that they're the one who's supposed to receive the diamond earrings. They're the one who's supposed to get the house or the car. Writing this out can help explain your decision-making so that you can avoid some of that acrimony. It's also a really good place that people can put in things like, "What are my social media passwords? What are my online account passwords? Where are important documents like life insurance policies? Where are they stored?" Those types of things are what the "I Love You" letter can accomplish. So it's not a legal document, but it can carry just as much weight as a legal document.
MARK: Yeah, that's a great idea.
And in the past, Austin, you've talked to me about how you get two things to worry about. You've got sort of the death angle, but there's also the incapacity angle and the will and the "I Love You" letter. Those are kind of death related documents. Tell me a little bit about some of the documents pertaining to incapacity. What are those?
AUSTIN: Sure. So we've just talked about everything that you really need from foundational talking about your death, but for incapacity, there's really two documents.
The first is for me, one of the most important, that's a durable financial power of attorney. This basically says, "I'm giving someone the power to act as if they were stepping into my shoes, to be able to go to banks, to make deposits, withdrawals, to open brokerage accounts, to potentially making gifts to my heirs if I'm not able to do so if I've got a gifting plan that needs to be kept up." Because one out of every three people is going to experience some level of incapacity in their life. Whether that's going into a hospital and you … say you got into a car accident, and it only lasted a week, but during that week, your bills still have to be paid, your money still needs to be managed. If there's a downturn in the market, someone needs to authorize trades. Or it can be much more protracted. There are people who go in and have serious heart attacks or car accidents that they are in the hospital for six months, even a year, just to get through the recovery. So this gives someone you know and trust implicitly—and I can't state that more emphatically—is the person that you give this power to, you need to trust them implicitly because they will be able to do everything you have the power to do. But it will really save you a lot of time because if something happens to you, the moment they grab that document and start acting on your behalf—once it's validated by your institutions—they've got the power to keep your finances from deteriorating.
Now I'd be remiss if I didn't point out that there's another kind of power of attorney called a springing power of attorney. Now some people like this because basically it only comes into effect—it's called springing—because it only comes to an effect when the incapacity occurs. So the person doesn't have the power to work on your financial matters unless you're in the hospital and the doctors say that, "hey, you're incapacitated." The problem is, is most of the time, these require one, two, three doctors to sign off, and then you've basically got to go and say, "Hey, now this is valid." That can take time. And we recommend the durable power of attorney because you should trust the person who you're giving this power to from day one—so that if there's something that actually happens, and they're not as trustworthy, you'd rather be non-incapacitated to be able to see it then basically say, "Well, I'm waiting until I can no longer do anything because I'm in the hospital unconscious, and now this person has full run of my finances." So that's the reason why we choose one over the other, but again, this is facts and circumstances dependent. There are going to be times where a springing power of attorney might make more sense depending on the individual's facts or circumstances.
MARK: So another document that comes into play is this advanced directive document. Tell me a little bit about what that's all about.
AUSTIN: Sure. So advanced directive—basically it's encompassing three different documents because every state has either one or a combination of these three that you are able to choose from as your advanced directive.
The first is going to be a health care proxy. It's very similar to basically a financial power of attorney—it's actually known as a medical power of attorney in some states—where you give the power to someone to make medical decisions for you if you're unable to do so.
The next document is going to be a living will. So whereas you named someone in that health care proxy to speak on your behalf, a living will is going to be the document speaking for you if you're not able to. So a living will basically says, "Hey, here are the types of things that I do or do not want done to me if I'm seriously injured or I'm terminally ill." So these normally only come into effect if you are seriously injured or terminally ill. So I really like these because some people, myself included, I want to basically have the doctor say, "What is the chance of survival?" I don't want to be kept on ventilators. But then again, this is a personal decision for everyone. Not having that, again, leaves it up to your family, whoever's closest to you. So the document here speaks for you.
The final document is going to be a do-not-resuscitate order, or a DNR. You've probably heard this on Grey's Anatomy, ER, all the hospital shows. They talk about having DNRs. That's basically saying if you go into cardiac arrest and have an active DNR, they are not to perform CPR on you. So basically, when your heart stops, they are required not to do anything to restart your heart. This is very common in patients who have been terminally ill where they say, "Hey, if my time comes, I'm ready to go." Or there might be other circumstances, but this is something that's important for people to manage their own end-of-life care.
MARK: Before we continue, I want to take a moment to encourage listeners to reach out to me on X, formerly known as Twitter, through my handle @MarkRiepe. M-A-R-K-R-I-E-P-E. You can send me your thoughts on the show, suggestions on what you'd like to learn about in the future, or just put an interesting study on my radar.
Also, for those listening on Spotify, you can submit a comment on specific episodes in the app. So consider submitting follow-up questions to episode topics that left you wanting a little bit more. I'll put links to both platforms in the show notes. Thanks, and enjoy the second half of the episode.
We'll get back to Austin and the ins and outs of estate planning and estate taxes in a few moments. Right now, let's do what we do on Financial Decoder and look at some psychological studies exploring how people think about and react to taxes. And frankly, people are weird about taxes.
One of my favorite academic studies is titled "Axe the Tax: Taxes Are Disliked More Than Equivalent Costs."[2] It looks at tax aversion, which the authors define as "a desire to avoid taxes per se that exceeds the rational economic motivation to avoid monetary cost." In other words, some of us hate paying taxes so much, we would rather be inconvenienced or pay more than the amount of the tax to avoid paying the tax in the first place.
The idea is like the person who, rather than paying a few more cents for gas at a gas station near their house, will drive twenty miles to a gas station where the gas is less expensive to fill up.
That might seem like a good idea, but if they did the math, they would realize that the amount they spent making that trip more than offset the gain from buying the slightly cheaper gas.
But we're here to focus on taxes. In one experiment in the study I referenced, participants read a scenario in which they are asked to imagine that they want to buy a particular TV. Two stores have it. One store is a five-minute drive away but doesn't offer any discount on the price. The other store is 30 minutes away but offers a discount. Now here’s the crucial part of the experiment. One group of participants is told that the discount at the faraway store is an 8% tax-related discount. Think of it as the type of sale where you don’t have to pay the sales tax on your purchase. Another group is told it's a 9% discount, but there’s no connection to taxes. They’re just told that the faraway store is selling the TV for 9% off.
Here are the results. Significantly more people said they'd rather drive 30 minutes to get the 8% tax-related discount rather than get a 9% discount that had nothing to do with taxes. To sum that up, people were far more willing to make the 30-minute trek to avoid paying 8% in sales tax on a TV than they were to make a 30-minute trip to get a 9%-off price that wasn’t connected to taxes in any way. Now that’s an example of tax aversion.
Now that I think about it, it also explains why the big-box hardware store that’s about a mile from my house is seemingly always running “no sales tax” promotions. They appear to be more effective at enticing buyers to come out and shop.
This same study also did another experiment that found that people were more likely to invest in tax-exempt bonds than a taxable corporate bond, even if the tax-exempt bond is, as the researchers put it, "sub-optimal" when compared to the taxable bond. In other words, the yield on the bond was much lower than it should have been after accounting for the tax deduction.
In another study by completely different researchers, they studied how tax aversion affects worker productivity.[3] They separated participants into groups and gave them a typing task for which they were paid depending on how many strings of characters they could type in 10-minute blocks of time. All groups started out getting paid the same amount for the typing. But then, researchers told Group 1 that they would earn 50% less for the same amount of typing. Group 2 was told that their pay wasn’t changing, but they would pay a 50% tax back to the experimenter and that money would be used to pay for future studies. So, in effect, they were getting the same pay cut as Group 1, but it was in the form of a tax. Group 3 was told that they would be earning the same pay, but they also would have to pay a 50% tax, but the tax would go to the federal government.
As you might expect, researchers saw a large decrease in productivity for the workers in Group 1 whose pay was cut in half. But the workers in Groups 2 and 3 also had their pay cut by the same amount, but the reduction was framed as paying a tax. These groups also saw a big hit to their productivity, but the decline was even greater than the first group whose workers were told it was simply a pay cut with no tax association. As the researchers put it, "These results demonstrate 'tax aversion': a decrease in productivity due simply to the fact that the same net decrease in wages is being implemented as a tax."
You've probably guessed that tax aversion is the kissing cousin of the loss-aversion bias, which is when we feel the pain from losses much more acutely than we feel pleasure from gains of the same amount. But when you slap a "tax" label on those losses, it's like rubbing salt into a wound.
Now, at Schwab, we believe in what we call “tax smart” investing. The goal is to maximize your after-tax return after controlling for how much risk you’re comfortable taking, given the goal for your investing plan.
Another phrase you’ll hear people use is “Don’t let the tax tail wag the investing dog.” That’s kind of a clumsy phrase, but the idea is that you need to focus first on making sound financial decisions and then implement those decisions in a manner that is the most tax efficient possible.
And now let's get back to estate planning and, yes, taxes, with Austin Jarvis.
Austin, I think now is a good time to kind of pivot towards some of the more kind of specific estate plan issues. And of course, some of that starts with the accounts that we have. A lot of the assets are in the form of accounts at different institutions.
So one of the important things is making sure those accounts are titled in the right way. So tell me a little bit about that, and what are some of the considerations?
AUSTIN: So the first thing is we like to say in estate planning that account titling and beneficiary designations are the first step in estate planning, because these provisions that—titling of counts, the beneficiary designations—they supersede anything that you put into your will because they transfer assets by operation of law. Now you basically asked specifically for account titling. These are going to be basically broken up into two different types. There's going to be accounts that are known as joint tenants with right of survivorship, and there's going to be POD and TOD accounts.
So the joint tenancy is basically two people. They own an asset or an account together. They have access to the account throughout their life. But when one of those joint tenants passes away, that right of survivorship automatically transfers those assets to the surviving joint tenant. Nothing in the will can supersede that. It's an automatic transfer once death has been notified to that institution or for whoever controls that asset. So it's a really good way to basically get your estate planning done just through an account title.
Now POD, TOD—that means "pay on death," "transfer on death"—these are going to be accounts where you have sole access. If you're the account owner, you have sole access to that asset or that account during your life. Whoever you name, basically for that pay on death, transfer on death, they have no say during the life. But when you pass away, by operation of law, that account gets transferred to whoever you've named as the POD, TOD.
MARK: And that's essentially who the beneficiary is, right?
AUSTIN: Correct. Now, there's beneficiary designations that are a little bit different. So beneficiary designations, you're going to have accounts that say, "Hey, who do you want to have this account transfer through a beneficiary designation?" That means when you die, that account automatically transfers by operation of law.
Now I will say there are some assets that we all know that are called true beneficiary designation assets that transfer exclusively by the beneficiary designations. Those are going to be your retirement accounts like 401(k)s, 403(b)s, IRAs, and most notably, annuities and life insurance. All of those assets—there's nothing that you can do in your will. The beneficiary designation on that account is the one that transfers. So make sure that you're looking at those beneficiary designations on those assets because they can have huge implications for your overall estate plan.
MARK: Austin, I'm going to get to taxes here in a second. But before we do that, are there any other things that married couples need to be thinking about or kind of arranging to deal with, given the fact that they're married?
AUSTIN: Sure. So I like to think of basically two things for married couples.
One is going to be a provision. We talked about it a little earlier. It's naming a guardian if you have minor children or if you have children with special needs that are going to need someone to take care of them throughout their life. So that guardianship provision or naming, you know, having a special-needs trust perhaps for a child with special needs, that's going to be very important.
The other thing is more of a tool, not a document, but it's going to be life insurance or disability insurance. Married couples, they function basically as a financial unit. You can have one high-earning spouse, one who's not working, a combination thereof, whatever you want. But if something were to happen to the high-earning spouse, you need to have that life insurance in order to basically supplement that income that's lost so that you can still have the kids go to the schools that you want, so that the house can be paid for, that college tuition.
And then disability insurance is another thing. If you're young and healthy, a lot of people in their 30s, 40s, and 50s—and you hear doctors talking about it—are being diagnosed with cancers at earlier ages, autoimmune diseases at early ages, and these disability insurance writers that are on some life insurance policies, but the disability insurance itself can be an important supplement to make sure that if something happens and one of the spouses can't work, that there are at least some income coming into the house.
MARK: Austin, let me give you a two-part question here. What are some of the wealth thresholds that people really need to start thinking about some of this stuff? And we've been talking a little bit about federal estate taxes. What about some of the individual states that also charge estate taxes?
AUSTIN: Absolutely. So my rule of thumb when thinking about federal estate taxes is that if you have a net worth of $10 million as a married couple, or you're an individual with a net worth of $5 million, you should be talking with estate-planning attorney about what strategies are available to you to plan for the possibility of future estate taxes. If you're earning a lot of income, if you've got a lot of highly appreciating assets, you could quickly find yourself in basically a projected liability for federal estate taxes. And the more you do now earlier, the easier it's going to be to plan for them.
Now you mentioned state estate taxes. So that's for federal. That's for basically all 50 states. There are 12 states, and the District of Columbia, that have their own estate tax rules. So in addition to the federal estate tax, these 12 states and D.C. have their own state estate taxes. These are typically lower than the federal estate tax threshold. Now a couple of them have modified it so that basically mirrors so that it's just if you go over the federal, you're going over the state. But there are some—like, I think, Oregon and Washington state come to mind—of having lower estate tax exemptions, much lower in the million to $2 million range if you adjust that for inflation. And these can catch a lot of people off guard because a lot of the major cities—think about this, your net worth, you know, if you've got a million dollar house, you've got a business that's worth a couple of million dollars, you've got an art collection—whatever it may be—you can quickly exceed those lower state estate tax thresholds. If you don't know if you live in one of those states, find out if you do. But if you do live in one of those states, look at what your assets are, what they might be in 10 or 20 years. And if you say, "Hey, I've got several million dollars on the line," it's time to go to an estate tax attorney in that state who can help you guide you.
MARK: All right, let's go back to the Tax Cuts and Jobs Act of 2017 because that obviously had a big influence on estate planning when it was passed several years ago, as you mentioned. Though it's scheduled to expire. So maybe break it down a little bit and get into more details than you did before.
AUSTIN: Sure. So the Tax Cuts and Job Act of 2017 essentially doubled the estate tax exemption starting in 2018.
So I'm going to be a nerd about this. I am an estate tax nerd. That's my passion. The federal estate tax exemption is basically set to what $5 million would have been in 2010. So that $5 million gets adjusted for inflation each year. In the current year 2024, that number is now $6,805,000. But because of the Tax Cuts and Jobs Act, that number gets doubled to the current exemption of $13.61 million per individual. So again, and that's going to be $27.22 million for a married couple. Now with that background, the Tax Cuts and Jobs Act is set to sunset certain provisions on January 1, 2026. Now that's barring congressional action, making those permanent or extending it for some but not for others. But that sunset does include the double exemption. So December 31, 2025, the exemption for an individual could be near $14 million once it's adjusted for inflation. If you're an individual in a state without a state estate tax with a net worth of $10 million, you're in the clear on that day. But if the Tax Cuts and Jobs Act sunsets those double estate tax exemptions, that means that you could wake up with a new lifetime exemption amount on January 1st, 2026, of about 7 million. So if we just take that example, that means that if you were to die with that $10 million estate on January 1, 2026—that $10 million—you could end up owing the government about $1.2 million just because you died one day after the sunset. That's how big of a problem this could be.
MARK: Yeah, and the problem is really just focused on those people who are above those lower limits. Is that right?
AUSTIN: Correct. So if you're above those lower limits—what it would be once the sunset—you've got a problem. You just don't know it yet …
MARK: Yep.
AUSTIN: … because you're in the clear with the doubled exemption, but you actually have a liability once that exemption falls back to what it's actually set to.
MARK: So at this point in time, given that we're recording this in the late summer of 2024, what actions should people who are kind of in that zone—what should they consider doing to prepare? Are there any specific strategies or tools that could help them navigate this situation?
AUSTIN: Sure. So there are three basics that I like to talk about with clients who are in this situation.
The first is adding what is considered the next-level foundation for estate tax planning—and that's a credit shelter marital trust. What that really does—I'm focusing on the credit shelter trust here—is saying, "OK, I've got that $13.61 million as my portion of the married couple that I can utilize." Well, if you've got that much assets and you were to pass away, you can fund that trust with the full $13.61 million. Now you'd want to do it with your most highly appreciating assets. But what that does is it basically locks all of those assets, any future appreciation and income, and that locks that away so that no estate taxes are going to be basically put on those assets when the surviving spouse passes away. That's number one. If you've got that much assets and you think that's worth it—now it does come with some legal expense, so you have to worry about that.
But if you're in that middle range. If you're like, "I don't have $13.61 million, you know, just to put into a trust," maybe you purchase life insurance to cover a projected estate tax liability. A lot of people can get it if you're young and in good health. Now, the only thing that you would have to worry about is making sure that you put it into an irrevocable life insurance trust. Follow all the rules associated with it. But that can be a fairly easy way to pay for that future liability with nickels and dimes on the future dollar. So that's another one.
And finally, I like to say that there is a safety net out there. There's what's known as portability for your unused exemption amount. That's the deceased unused exemption amount—the DSUE—where if you die and you don't have anything in place, and your surviving spouse goes, "Well, they didn't have a credit shelter trust. We didn't have anything." Well, what can happen is if you transfer all of your assets to the surviving spouse—if that's what the estate does—there's no estate tax due because there's this unlimited marital exemption where there's no estate taxes on what you transfer to your spouse who's surviving you. But what do you do with that exemption that you have? Well, within five years of the date of death, their estate can elect portability, which means that whatever isn't used—so if they've made lifetime gifts—it might reduce it. If they made, you know, transfers through your estate, it could reduce it. But whatever they don't use can be ported over to their surviving spouse for them to add to their exemption when they die so that they can reduce their estate taxes. So that's another option, but I will remind people that the IRS just changed the rules. It used to be you had two years to file portability. They just upped it to five years. So if you thought in the last couple of years, "Hey, someone passed away in 2020, 2021, and I forgot to do this and I think I'm barred," well, now the IRS has said there is a five-year limitation. And this can be an important thing if you're one of those people who have between, you know, if you're a married couple, between $10 and $20 million. Go back to your CPA or estate planning attorney and see if electing portability can help you.
MARK: So Austin, you mentioned that currently this reversion back to the pre-2018 rules takes effect January 1, 2026. So what sort of potential updates to this legislation are we expecting between now and then? Anything that could sort of change some of the advice you were just giving around estate planning?
AUSTIN: So unfortunately, politics plays a huge role in tax policy. So again, the outcome of the election that we have coming up in less than 90 days could basically give us a good direction on where this is going. Each side has given their position on what they want to have happen with the estate tax exemption. One side wants to allow it to sunset. The other wants to make it permanent. But I will say that if, after this election, we have a divided government—if one party controls the White House, or if one party controls one chamber of Congress—then we have a divided government. And it has not been uncommon to see the estate tax in the exemption used as a bargaining chip as basically, "I'll give you this for that."
So I will say just historically, there has never been a reduction in the estate tax exemption amount. So there's some practitioners out there who say, "Well, because of history as my guide, I don't think it's ever going to sunset." But the last, I think the last eight years of our lives, we've heard the word "unprecedented" more times than we can count. And I do think that this could be one of those unprecedented times where we actually see the exemption fall back, because barring congressional action and a new law signed by the president, this will occur on January 1, 2026.
MARK: So like a lot of things, we're just going to have to wait until after November and get a clearer indication as to what might or might not happen going forward. That seems to be the bottom line, right?
AUSTIN: That is the bottom line.
MARK: Austin Jarvis is a director of estate trust and high-net-worth tax here at the Schwab Center for Financial Research. I actually counted 38 articles on Schwab.com right now that Austin either wrote or he's heavily quoted in. So tremendous that you're able to be here, Austin. Thanks for your time today.
AUSTIN: Thank you, Mark.
MARK: That’s it for today’s episode and Season 17 of Financial Decoder. If you'd like to find out more about estate planning, estate taxes, and other taxes, visit schwab.com/taxes. If you'd like to read some of Austin's excellent thirty or so articles, you can look him up on Schwab.com as well. And we'll include links to all of this in the show notes.
If you'd like to hear more from me, you can follow me on my LinkedIn page or at X @MarkRiepe, M-A-R-K R-I-E-P-E. And if you like the show, a rating or review on Apple Podcasts would be much appreciated.
We will be back in a few weeks with new episodes. But while you’re waiting for new ones, please look at our back catalog of older episodes. Lots of good stuff to listen to there.
We always like new listeners, and if you know someone who might like the show, please tell them about it and how they can follow us for free in their favorite podcasting app.
For important disclosures, see the show notes and schwab.com/FinancialDecoder.
[1] NCC Staff, "Benjamin's Franklin's Last Great Quote and the Constitution," National Constitution Center blog post, November 13, 2023, https://constitutioncenter.org/blog/benjamin-franklins-last-great-quote-and-the-constitution
[2] Sussman, Abigail B. and Olivola, Christopher Y., "Axe the Tax: Taxes Are Disliked More than Equivalent Costs," Journal of Marketing Research, Vol. XLVIII (Special Issue 2011), S9 -S101
[3] Kessler, Judd B. and Norton, Michael I., "Tax Aversion in Labor Supply," Journal of Economic Behavior & Organization, October 20, 2015, www.elsevier.com/locate/jebo
