Estate Planning, Gift Taxes and the Election: What You Need to Know

Amid election uncertainty, many people find themselves worried about how to plan for the future. A change in administration and political party in charge can mean changes in tax laws applying to estate planning and gift taxes.

Even without the election, end of year is a popular time to change your tax strategy. So as you wind down 2020, we offer our thoughts to assist you and your family as you plan.

Estate planning is not just for the ultra-wealthy.

The word “estate” often conjures mental pictures of mansions, luxury cars and country clubs. Yet estate planning isn’t limited to the realm of the super rich. Many people consider annual gifts to family and loved ones this time of year. Still others are concerned about how to maximize their lifetime estate and gift tax exemption—especially with talk in the news of impending slashes to the estate exemption under a Biden administration.

Estate planning isn’t all about making huge gifts or setting up complicated transactions and structures. It also involves moves anyone can make to safeguard their financial future. For example, having a will is an important first step for everyone. A will allows you to plan for the orderly transfer of assets after your death. Families with young children should also consider who they want to be guardian of their children when creating their will.

Many people choose to go one step further than a will by transferring assets to a revocable trust. Assets in a revocable trust don’t have to go through probate (the sometimes lengthy judicial process required to verify a will) while still allowing you to maintain control of your assets during your lifetime.

How will the estate tax change with the new administration?

Now that it’s apparent Joe Biden is the winner of the 2020 election, sights have turned to the Democratic estate tax proposals. These include:

  • Cutting the lifetime estate tax exemption from the current $11.58 million currently to $3.5 million (Republicans are seeking to make the higher exemption permanent)
  • Increasing the estate tax rate from 40% to 45%
  • Eliminating the step up in basis that allows decedents to pass capital gains to heirs tax free.
  • Taxing unrealized capital gains on the final income tax return of a decedent

Adding to the uncertainty of estate planning is the upcoming January 2021 runoff for Georgia’s two Senate seats. Since tax legislation must pass through the House and Senate before going to the president, the balance of power in Congress will play a major role in how the laws change.

While Democrats currently hold a narrow majority in the House, control of the Senate hinges on Georgia. If Democrats win both seats in the Georgia runoff, the Senate would be tied. This would leave the tie breaker vote to the Vice President—clearing an easier path for Democratic tax policies.

If Republicans win at least one of the Georgia seats, however, the Senate will remain under GOP control. A divided Congress, coupled with a fragile economy due the COVID-19 pandemic, leaves many tax policy experts skeptical that any sweeping tax changes would take place.

If you’re considering making a gift…

While changes to estate planning and gift tax laws are hot news, the current $11.58 million exemption sunsets in 2025 regardless of election outcomes. So even if no sweeping changes are made in the near future, families who want to take advantage of the dramatically higher exemption have limited time to do so.

Here are a few steps you can take the start your estate planning and gifting process.

  • Consider your options, but don’t be hasty. Some transactions and structures provide a large degree of flexibility regardless of election outcomes; others can be hard to undo. Make sure you’re discussing with your advisors and planning strategically rather than reactively.
  • Start now. Estate planning takes time and thought to execute well. CPAs and attorneys are busy with client planning requests this time of year, so get an appointment on the calendar now.
  • Gather your financial information. Figure out what you have, what your expected lifetime needs are and what you may be interested in transferring. And we can assist! Through our partnership with HK Financial Services, we have developed a GPS (Guidance|Planning|Strategies) software tool to help simplify this important task.

Nearly everyone can benefit from solid estate planning and gifting strategies. By taking these steps, you can help ensure financial security for you and your beneficiaries. Contact our wealth management CPAs to get started on this important process.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.