Estate Planning In a Presidential Election Year

by Philip Simoneaux, Senior Manager

Do you have a plan in place? Currently, the unified federal estate and gift tax lifetime exemption is at a historically high $11.58 million (2020). However, if nothing is done in Congress, the current exemption amounts will sunset on December 31, 2025. Beginning on January 1, 2026 the exemption will fall back to 2017 amounts of $5 million adjusted for inflation. The IRS has issued final regulations under IR-2019-189 that there will be no “clawback” for gifts made under the increased estate and gift tax lifetime exemption. What this means is that the IRS will not retroactively assess gift tax to any lifetime gifts in excess of the sunset exemption amount. Therefore, this offers a unique time for taxpayers to maximize the value of the current lifetime exemption before it’s potentially reduced. Under the current law, if no action is taken by the end of 2025, you could cost your family an estimated $4.6 million in additional estate taxes and reduce the amount of wealth transferred.

Legislative Proposals

As we await the final election results, Elliott Davis has been closely monitoring President Trump and Former Vice President Biden’s legislative proposals for estate and gift tax.

President Trump
  • After the passage of the Tax Cuts and Jobs Act that effectively doubled the lifetime exemption, no additional proposals affecting estate and gift tax have been presented.
Former Vice President Biden
  • Elimination of basis step-ups for inherited assets: Currently, when a decedent passes away, assets in their estate typically receive a basis step-up to fair market value when inherited by a beneficiary. Instead of the beneficiary’s cost basis being the same as the decedent, it becomes the fair market value at the date of death or alternate valuation date. In Biden’s plan, the step-up would be eliminated and the beneficiary would either assume the decedent’s cost basis in the asset or the unrealized appreciation could be taxable at the decedent’s death.
  • “Historical normal” lifetime exemption: While not formally proposed yet, Former Vice President Biden has indicated his desire for the estate and gift tax lifetime exemption to return to a “historical normal”. What is unclear at this time is what that would look like. However, we can look at recent history to get an idea:
    • Pre-TCJA levels of an inflation-adjusted $5 million lifetime exemption and maximum 40% tax rate.
    • 2009 levels of $3.5 million estate and $1 million gift lifetime exemptions and maximum 45% tax rate.
How Much Could The Potential Estate & Gift Tax Changes Affect You?

Here are two examples of how the potential estate & gift tax changes affect you.

Case 1 – $30 Million Estate, No Portability [1]

Case 2 – $8 Million Estate, No Portability 

As illustrated above, significant estate and gift tax savings can be achieved by being proactive. Through our comprehensive estate planning with strategies tailored to you, even more savings can potentially be realized and maximize the wealth shepherded to beneficiaries.

Let’s make a plan!

[1] Portability refers to the ability of the surviving spouse to utilize the unused estate tax exemption of the deceased spouse

We can help

Contact one of our Personal Financial Services advisors to see how we can help you estate plan in this election year.

In the coming weeks, we will have a more in-depth analysis of the election winner’s estate and gift tax plan.

The information provided in this communication is of a general nature and should not be considered professional advice.  You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.