While some people are still debating the outcome of the 2020 election, it is extremely likely that Joseph R Biden Jr.
will be the next President of the United States. As President, Biden and his administration will likely attempt to pass new regulations that remove some estate planning opportunities to raise revenue to pay for costs associated with things like increasing assistance during the pandemic. While it is only possible to speculate at the moment, this article discusses some of the most likely changes during the administration that individuals should consider while estate planning.
# 1 – Exemption Amounts Will Be Reduced
Estate and gift tax exemptions are high at the moment ($11,580,000), but this amount is scheduled to lower again (to $5,850,000) in 2026. The Biden administration, however, could very well pass legislation that more promptly reduces these levels as soon as the beginning of January 2021. As a result, people who are interested in utilizing these exemptions should consider making gifts now to take advantage of these exemptions. Remember, however, that these exemptions only provide an advantage if you are gifting $11,580,000.
# 2 – Increase Capital Gain Tax Rate
The Biden Administration will almost certainly result in increased tax rates. While the exact nature of these increases remains uncertain, the Biden administration previously proposed taxing long-term capital gains for taxpayers with greater than $1 million in income at ordinary income rates. Taxpayers might decide to utilize certain techniques like selling appreciated assets to reduce the effect of increased tax rates. Decide to sell assets now, however, should be considered in light of the taxes that would be incurred now.
# 3 – Increased Tax Rates
Estate, gift, and generation-skipping transfer taxes are currently 40%. The Biden administration, however, has proposed increasing these taxes to 55%. As a result, if you plan on making a gift at any time that will incur these taxes, you should consider doing so now to take advantage of reduced rates.
# 4 – Additional GRAT Restrictions
Grantor retained annuity trusts (GRATs) are trusts in which a grantor makes a donation and receives an annuity or payment over a fixed period of time. The advantage of GRATs is the potential to transfer appreciation past a certain rate of return (at the moment, .4%) to individuals or trusts that are not part of the grantor’s taxed estate. Two likely upcoming changes to GRATS are that the period that grantors must pass for the GRAT will be increased and a law might be passed requiring minimum gifts for GRATs to be valid. To avoid these later complications, people who are interested in creating and funding a GRAT should consider doing so before the end of the year.
Speak with a Knowledgeable Estate Planning Attorney
The estate planning process is a complex one, but a knowledgeable estate planning attorney can help you identify how to make the most of your situation as well as determine what strategy works best for you. Contact Ettinger Law Firm today to schedule a free case evaluation.