Potential Changes to Gift and Estate Tax Laws in 2021 and Beyond

Potential Changes to Gift and Estate Tax Laws

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Potential Changes to Gift and Estate Tax Laws in 2021 and Beyond

One of the biggest questions with estate planning today is when and if Congress will make changes to the current estate planning, gift, and estate tax laws in the coming days. In this newsletter, we will make sure that you have an understanding of what these potential changes mean to you, so you can fine-tune your estate plan accordingly.

Wealth Transfer – How the Potential Tax Changes Can Impact Your Estate Plan

First and foremost, it is possible that the Biden administration is considering lowering the gift tax exemption. To clarify, the gift tax exemption is the amount of money you can gift to a friend or relative tax-free. Currently, the exemption is a whopping $11.7 million, but President Biden has proposed bringing that exemption down to $3.5 million. There is also some talk that there is support for bringing the exemption down to $5 million. Whatever the case, now is a good time to transfer your wealth as a gift – before the tax laws change.

The Capital Gains Question

The Biden administration has also signaled that it would like to tax any capital gains at the same rate as regular income – for those who make $1 million or more annually. If you make more than $1 million per year, then now might be the time to realize any capital gains on your investments because the tax rate on that capital gains income may double.

Freezing the Size of Your Estate

It could be that both you and your spouse have used all of your exemptions and are looking for alternative ways to reduce the taxes on your estate, or maybe you are just not ready to commit to large transfers of any of your property. It may be possible to freeze the growth of your estate with a tool called a Grantor Retained Annuity Trust (GRAT). GRATs and installment sales are booming in the era of low-interest rates because your assets more than likely have increased at a rate far above the rate of an annuity. By utilizing a GRAT, you are essentially freezing the size of your estate and transferring appreciation that would have remained in your estate otherwise.

Remember, Uncertainty Doesn’t Mean You Shouldn’t Plan

With any new presidential administration, there will come changes, and tax law changes are particularly fluid from administration to administration. That, however, should not dissuade you from waiting to engage in estate planning. Tax laws are always somewhat of a moving target. To conclude, given the possible changes to the tax laws, you may want to consider the following.

Make a gift to take advantage of the current $11.7 million exemption.
Make a gift to your irrevocable trusts or shift any appreciation out of your current estate using such tools as intra-family loans and GRATs.
Remember, any tax changes are likely to take effect for the tax year 2022.

Read the Full Article Here

Want to stay up to date on estate planning and tax law changes that may affect you? Check out the Doane & Doane legal blog for the latest news and updates!

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In The News

REMINDER

IRS extends tax deadlines for individuals to May 17

The Treasury Department and Internal Revenue Service announced that the federal income tax filing and payment due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021.

Time to make contributions to IRAs and health savings accounts extended to May 17

In extending the deadline to file Form 1040 series returns to May 17, the IRS is automatically postponing to the same date the time for individuals to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs). This postponement also automatically postpones to May 17, 2021, the time for reporting and payment of the 10% additional tax on amounts includible in gross income from 2020 distributions from IRAs or workplace-based retirement plans. This also postpones the due date for Form 5498 series returns related to these accounts to June 30, 2021.

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