It’s a very busy and distracting time of the year with the fast-approaching holidays and, of course, the election that’s just around the corner. This time of year is always a great time to review any current estate plans you already have in place and with the upcoming election there could be some other actions to consider. Estate planning tax exemptions could be changing depending on the outcome of the election.
What the Current Laws State…
The current federal estate tax exemptions were doubled by President Trump in 2017 and were slightly increased in 2020 to $11,580,000 per individual and $23,160,000 for married couples. So, gifts or asset transfers up to the available exemption amount can be made during your lifetime, but anything more than these amounts are taxed at 40%.
What the Election Could Mean…
If President Trump is re-elected, the current federal estate tax exemptions will likely state the same and will not face significant changes until the end of 2025. The President has inferred that he will set out to extend this law if he is re-elected.
If you have a larger estate and may fall into the higher tax brackets, the outcome of the election may have a significant impact on your estate if former Vice President, Joe Biden, is elected.
Biden has mentioned plans to repeal the law that President Trump signed into action. Meaning the exemption for the estate tax could be lowered back to $5,000,000 per individual and $10,000,000 per married couple, as they were before President Trump was elected. While Biden hasn’t released a specific plan, there is also consideration that, if he is elected, he may lower the estate tax exemption even further, potentially to $3,500,000 or less.
Depending on the value of your estate, however, there are ways to utilize your exemption before any potential changes may bring costly taxes to you or your beneficiaries.
Strategies to consider…
If your potential plans for gifting your estate may be impacted by a reduction of the estate tax exemptions, there are some estate planning strategies that may help you utilize the exemptions.
- Lifetime gifts – Gifting your assets while you’re alive may be something to plan for by the end of the year. Of course, you don’t want to jeopardize your current lifestyle and any plans you have for your retirement, but if you are able to part with anything you are eventually planning to gift anyway, it may not be a bad idea.
- Sale to Irrevocable Trust – selling assets to irrevocable trusts which would otherwise be subject to 40% estate tax, recognizing tax gain at the time of transfer while shifting any future appreciation outside of the donor’s estate.
- Charitable remainder trust – transferring assets to irrevocable charitable remainder trust and taking deduction upon such transfer.
These strategies, however, are complex and require careful consideration. Each person’s financial situation is different. With the help of an estate planning attorney, these considerations help you save money on taxes for yourself and your beneficiaries. We can help determine the best action for your estate planning based on the election results. During your Family Wealth Planning Session, we can take inventory of your assets and put you on the right path. We help you to understand all your tax implications and plan accordingly.
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Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.