Updated: Jan 8
The Georgia runoff election held Tuesday resulted in Democrats winning both Senate seats. Given the Democratic presidency and majority in the House of Representatives, it is likely that we will see major changes to the estate and gift tax rules that could significantly limit opportunities for estate and tax planning.
President-elect Biden has proposed several changes:
Reducing the federal estate and gift tax exemption from $11.7 million to $5 million (or even as low as $3.5 million) before the scheduled sunset on January 1, 2026
Increasing the federal estate tax rate, currently at 40%
Eliminating step-up in tax basis, which would expose appreciated assets to capital gains tax rates
Changing regulations to eliminate discounting of family business interests on inter-family transfers
There are many options to consider in order to preserve your wealth, but transferring assets to a trust can be a great way to (i) preserve access to the funds, (ii) minimize liability exposure, and (iii) take advantage of current estate and gift tax exemptions and discounting rules. Any transfers made using today’s high estate and gift tax exemption amounts are protected from future taxes if those high exemption amounts are reduced. Further, potential revisions to income tax laws such as rate increases and payroll tax changes may necessitate planning, especially for owners of closely held businesses.
These legislative and regulatory changes are anticipated to be issued in 2021. It is not too late - be proactive in safeguarding your assets by revisiting your current estate plan and reviewing income tax matters. The steps necessary to decide on a wealth transfer strategy can take time, so start preparations now.
We can provide you with the guidance you may need to navigate the many complex estate planning techniques available. For assistance with strategies that can benefit you most, please contact one of our estate planning attorneys.