Any change to the administration in the White House almost always brings change to tax law. The Biden administration is no different. We’ve heard a wide range of ideas from the President as well as Democrats in Congress. While we can’t predict which of these proposals will become a reality, we can be certain change is coming.
Tax law changes take time and often require many iterations before getting passed. This means that we can see change coming and often have time to adjust our plans. We prefer to be proactive when possible. If you’re contemplating a change to your plans, act now. Any midyear legislative changes are unlikely to be made retroactive, so anything you do now has a good chance of being preserved.
Temporarily high exemptions
Historically low interest-rates
Depressed asset values
Although the equity markets have done extremely well since the low in March 2020, certain types of assets have not recovered as well. Specifically, real estate and some operating businesses remain depressed. It may be beneficial to transfer wealth now using these depressed assets that are expected to recover value over time.
Ordinary income tax rates may be changing
Consumption (spending) and charitable gifts (now or at death)
Annual exclusion gifts
Each year, you can give up to $15,000 (in 2021) to as many individuals as you’d like. And if you’re married, your spouse can do the same. This means if you have three children and six grandchildren, you and your spouse can both give annual exclusion gifts of $15,000 to each, for a total giving amount of $270,000 per year. And this doesn’t even include children’s spouses! You can also pay for children’s and grandchildren’s tuition and medical expenses directly in addition to the annual exclusion gifts. As a reminder, annual exclusion gifts are separate from your cumulative lifetime and estate exemption amount. They don’t count against that “temporarily high exemption” we referenced above.
Estate freeze techniques
These wealth transfer strategies don’t use any of your wealth transfer exclusion amount, but they do remove the growth of those assets from your estate. Examples include:
Use applicable exclusion
Give some—or all—of that $11.7 million we talked about at the beginning of this article to trusts for children, grandchildren, or even your spouse.
The strategies mentioned in this article are not intended for everyone and this is not intended to be a comprehensive list. If you would like to learn more about how any of these strategies may be applied to your specific situation, please give us a call. As always, please seek advice from your accountant or estate planning attorney before taking any action on these ideas.