While some of us cannot wait for 2020 to be in the rearview mirror, 2021 holds even more uncertainty. With the election here, we are regularly discussing what a change in control of both the White House and Congress may mean from a transfer tax perspective. Many expect that should Democrats take back the White House and Congress, there will be major changes to the gift, estate and generation-skipping transfer tax regimes.
Even without a political change it is important to review your current estate plan and its potential tax consequences. Estate tax laws on the federal and State levels are always subject to change and, historically, have changed frequently. In addition, during these turbulent economic times and the need for extra government assistance, revenue raising concerns by either party in control could impact our current estate tax laws.
Currently, individuals are allowed to transfer $11.58 million free of federal gift and estate tax (which is $23.16 million for a married couple). This law sunsets at the end of 2025, and the amount that can be transferred free of federal gift and estate tax beginning January 1, 2026 is $5 million per individual as indexed for inflation. Notably, there is concern that if Democrats gain control, this reduction could be accelerated or be altered to a lower exemption amount. Significantly, such changes could have an effective date of January 1, 2021. In addition, other traditional estate planning techniques could be abolished or made much less attractive, including certain valuation and discount planning and the use of grantor retained annuity trusts (“GRATs”).
In this climate of uncertainty, we recommend that clients who wish to take advantage of the favorable planning environment currently in place with respect to the gift and generation-skipping transfer tax do so as soon as practical. Some techniques require a period of time to execute, especially when working with a corporate trustee and/or when establishing accounts at a financial institution for funding purposes. Accordingly, in order to have the most options available, clients should act now.