Tom Virkler, JD – Director, CPS Advanced Markets
About the Author
Tom Virkler is our estate planning attorney at CPS Insurance. He works with PJ Johnson and I to align life and long term care insurance with estate and business planning goals. He focuses on issues of income and transfer taxation that attend the sale, implementation and administration of a case.
Among the tax proposals that have been put forth in the Biden/Harris plan is a change in the federal gift and estate tax that could greatly expand the number of folks you may need to contact before the end of the year.
In a nutshell: an individual taxpayer can currently protect a taxable estate (or gift during his/her lifetime) up to $11,580,000. A married couple can protect a combined $23,160,000 and even pass any unused portion of the individual amount at the first death to the surviving spouse if proper steps are taken. These amounts are scheduled to be reduced by 50% on January 1, 2026.
The Biden/Harris proposal would return these amounts to their pre-Trump levels of $5,490,000 per taxpayer and $10,980,000 per married couple. There is also speculation that Democrat control of the House and Senate could result in these exemptions being reduced to $3,500,000/$7,000,000 as recommended under the Obama Administration, with the possibility of the tax rate being increased from 40% to 45%.
Three quick considerations if these changes appear likely
Gift now, or forever hold your peace.
There are already “early gifting” strategies bantered about to maximize estate reduction before the anticipated reduction of the exemptions on 1/1/2026. A change in administration could move that event horizon to 1/1/2021. Of course, the unsettling mouse that is always rustling behind the wainscot is the possibility that tax law changes might be made retro-active.
If married, maintain vicarious access to the gift
Taxpayers can gift to a spousal lifetime access trust (SLAT) with liberal allowance for distributions to the beneficiary spouse. So long as the spouse is alive, the donor spouse can still get access to assets in the trust through the beneficiary spouse.
If necessary, lean on private loans
Widowed or unmarried donors to an irrevocable trust can still have use of the trust assets through low-interest loans made from the trust.
Another Biden/Harris proposal is that the step-up in basis on inherited property be eliminated in return for the taxation at death of unrealized capital gains on estate assets for deceased high-income earners. This would be compounded by a proposed increase in capital gain rates. Lifetime gifts would delay this tax, but not eliminate it because a one receives a gift with the donor’s original basis in the asset.
Interested to learn more?
Call PJ Johnson or Stephanie Dannebaum
with any questions on these matters.