By Ashley Zenobio, J.D.
Many taxpayers are waiting to learn the outcome of the 2020 election and are eager to see how those results will impact federal gift and estate tax laws going forward. However, experts are now saying that failure to take immediate action on estate planning could prove to be detrimental in these uncertain times.
The federal estate tax is collected on the transfer of an individual’s assets to his or her heirs and beneficiaries after death. The federal government offers an exemption that allows U.S. Citizens and permanent residents to transfer their property up to a defined net value, tax-free — either by lifetime gifts or upon death. This exemption amount has changed dramatically over the last 20+ years, and is poised to change yet again.
The current “Tax Cuts and Jobs Act” legislation adopted in 2017 raised the federal gift and estate tax exemption to $11.4 million, which represents a significant increase over prior limits. Unfortunately, congress did not have the required votes to make this increase permanent, and the federal exemption is currently scheduled to drop to $5 million (indexed for inflation) at the end of 2025. This means that if things do not change, those who die on or after January 1, 2026 without having utilized their temporarily increased exemption through lifetime wealth transfers may have their estates face millions of dollars in additional estate taxes. But some experts have raised concerns that are significantly more troubling…
Legislation recently introduced by various prominent Democratic party leaders, including Sen. Bernie Sanders, and Rep. Jimmy Gomez propose an immediate reduction of the federal estate tax exemption to $3.5 million with progressive tax rates increasing steadily on larger estates from 45% to a maximum rate of 77%. If a progressive Democrat like Bernie Sanders or Elizabeth Warren are elected as President in 2020, and Congress continues to drift to the left as it did in the last mid-term election, estate tax laws may change not in 2026, but much sooner. Those taxpayers that bide their time and wait to see what types of changes are proposed following the next election, might be waiting too long. We cannot know what the effective date of any future legislation might be, and by the time an estate planning strategy is developed and executed upon, it could be too late.
For those with larger estates, it is likely wise to consult with your trusts and estates attorney in the near future to ensure that you have analyzed and considered all available estate planning options while the exemption remains at this unprecedented high. At very least, you will be well informed and poised to act without delay when/if a change in the gift and estate tax exemption comes to pass.
Prior results do not guarantee future success
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