The year 2021 began with President Biden assuming his role in office. Democrats now control the House as well as the senate. As a result, many people are anticipating what changes the left has in store. While the introduction of tax changes has been discussed, it’s still too early to anticipate what will happen. The Covid-19 pandemic, however, will likely postpone estate planning changes. Given the changes that likely lie ahead, it’s important to do what you can to stay ahead of what might be coming.
Estate Tax Exemption Level
One anticipated change is that the estate tax exemption will drop to $5 million or lower. This change would lead to people utilizing various unique estate planning strategies. Some people have voiced the concern that if they pass away up to the current estate tax exemption of $11.7 million and later pass away when the exemption has been lowered to $5 million, they will owe estate tax on the lower amount as well as whatever assets are still found in their estate. The Treasury has provided directions as well as stated that they will not claw back gifts made before 2021, which afforded taxpayers the option to decrease their federal estate by transferring assets immediately and then drawing appreciation.
A chance remains that this exemption could be reduced in 2021 and may apply retroactively to January 1, which means that gifts surpassing the reduced exemption are taxable in 2021. Gifts made in 2021 would lead to people facing an unexpected tax bill.
The Loss of Step-Up Basis
The loss of stepped-up basis is also anticipated. Step-up basis involves a provision in current estate planning law that states an asset’s value is determined at a person’s time of death rather than its original cost. Given that capital gains taxes are likely to increase, the loss of step-up basis would be even more impactful.
New York’s Estate Tax
Some people are focused on potential federal changes, but each state has its own estate planning regulations too. While New York does not have a gift tax, the state does apply a 3-year “clawback” regulation where lifetime gifts are made within three years of a person’s death are “clawed” back to the deceased individual’s estate. New York also has an estate tax threshold of $5,930,000. Once this threshold has been surpassed, assets are subject to the state’s estate tax. Not only should people understand New York’s laws, but they also should understand the potential that these regulations will change. New York’s laws might also change sometimes soon, and the sooner these alterations can be anticipated, the better situated a person is.
Contact a Knowledgeable Estate Planning Attorney
Updating your estate plan is critical, particularly following the introduction of new estate planning laws. If you or a loved one needs the help of an experienced estate planning attorney, you should not hesitate to contact Ettinger Law Firm today to schedule a free consultation.