Tax Changes Due to the Election

Estate Tax Changes Expected

At the time of this writing, Joe Biden has a double-digit lead in the polls. A number of Senate seats may turn blue as well, and this could give the Democrats a majority in Congress. If all that was to come to fruition, there would be major tax law changes (this ignores tax increases expected due to Coronavirus spending).

For wealthy families, 2020 may be the last year to benefit from relaxed estate tax planning. Time is running out to take advantage of this window of opportunity.

Some of Biden’s contenders for the Democratic nomination were in favor of a so-called “wealth tax.” This is not part of Biden’s tax platform appears to favor an increase in the so-called “wealth tax”, which can be achieved by a reduction in the estate tax exemption (a smaller exemption leads to more estate tax).

The estate tax exemption’s current level is $11.58 million per individual. This means that an individual can give away USD $11.58 million ($23.16 million for married couples) to others during their lifetime or at death without being subject to gift or estate taxes. Without congressional action, these amounts are set to continue to increase with inflation through 2025, after which they will decrease back to about USD 5 million per individual. With congressional action, it’s likely that this “sunset” will come sooner, and that the exemption could be set even lower, under a Democratic administration or Congress.

While Biden has not committed to supporting all recommendations, the Biden-Sanders Unity Task Force has recommended returning the estate tax regime to the “historical norm.” This could mean restoring the exemption threshold to the 2009 level of $3.5 million per individual, and it could also portend an estate tax rate increase back to the 45% rate in effect in 2009.

ACTION ITEM:  This is a good time for clients with $11 million or more as individuals or over $23 million as a couple to consider gifting today by using their high exemption. If you do not use the current increased exemption you may lose it.

Further, it is suggested that instead of each member of a couple giving around $5 million now, which may leave no exemption in the future, one member of the couple gives $10 million now, leaving the other member of the couple to claim an exemption in the future.

Proactive gifting today using the current higher exemption by transferring the incremental amount out of your estate is a great way to transfer millions of dollars on an estate tax-advantaged basis.

We recommend against procrastinating until the makeup of the Congress and White House is determined in November. There is no official deadline to get started, but any gifts you want to make this year will need to be completed by December 31st. Gift planning is best done very carefully, and it can take time to organize things properly with an experienced tax and estate planning attorney.