Sometimes you have to strike while the iron is hot, and this dynamic can apply to certain aspects of your estate plan. Changes to relevant laws can result in time sensitivity, and we are in the midst of this type of situation right now.
Unified Federal Gift and Estate Tax
As estate planning attorneys, we are charged with the responsibility of protecting the legacies of our clients. High net worth individuals face an estate planning challenge in the form of the federal estate tax and its 40 percent top rate.
In addition to the estate tax, there is a federal gift tax that is unified with the estate tax.
There is a credit or exclusion that can be used to transfer a certain amount tax-free before the estate and gift tax would be applied on the remainder. In 2020, the exclusion is $11.58 million.
We should point out the fact that there is an unlimited marital deduction, so married American couples can leave any amount of money to one another tax-free. The estate tax exclusion is portable, so a surviving spouse could use the exclusion that was allotted to their deceased spouse.
Exclusion Reduction Is Looming
Now that we have set the stage appropriately, we can get to the crux of the matter.
The historically high exclusion that we have right now is the product of a provision that was contained within the Tax Cuts and Jobs Act of 2017 (TCJA). Prior to its enactment, the exclusion had been $5 million adjusted for inflation from 2011 through 2017.
In 2018, the exclusion went up to $11.18 million via the TCJA, and there have been adjustments to account for inflation since then. This measure will sunset or expire at the end of 2025, and at that time, the exclusion will go back down to the $5 million figure adjusted for inflation.
Between now and then, new tax legislation could expedite the reduction process, and it could potentially be retained or increased. It’s all hinges on the balance of power in Washington.
Democratic presidential candidate Joe Biden is leading in the polls, and observers tell us that there is a good chance that the Democrats will capture a majority in the Senate. Observers from both sides of the aisle expect the House to remain in Democratic hands.
When you put all this information together, a clear picture emerges. If you are exposed to the estate tax, you should seriously consider using the gift tax exclusion before it is decreased.
Lifetime gift giving is an option, and the exclusion can also be used to fund certain types of trusts. The ideal course of action will depend upon the circumstances.
Attend a Free Webinar
We are conducting a number of webinars over the coming weeks, and we urge you to join us for one of these sessions. It is a golden opportunity to obtain valuable information from the comfort of your home, and the webinars are being offered free of charge.
You can obtain more information if you take a moment to visit our webinar page.
Need Help Now?
If you are ready to work with an attorney from our firm to put an estate plan in place, we are here to help. We go the extra mile to maintain a virus-free working environment, and we also offer remote consultations if you would prefer to meet with us virtually.
You can schedule an appointment right now if you call us at 310-337-7696, and you can fill out our contact form if you prefer to send us a message.
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