Many legislative changes are expected over the coming months as our country transitions to a new administration. Although the Biden administration’s plans for estate tax reforms have not been fully detailed, signals from Biden’s campaign indicate that two major changes will likely be introduced to Congress:

• Reduction of the lifetime exemption. The current $11 million lifetime exemption amount (adjusted annually for inflation) that went into place as part of the Tax Cuts and Jobs Act of 2017 (an increase from the previous $5 million exemption) is set to expire at the end of 2025. For the year 2021, individuals may gift up to $11.7 million during life or at death without gift or estate tax consequences. If left unchanged, this amount would continue to increase with inflation until 2026 when the exemption amount would return to $5 million. However, many expect that the Biden administration will propose adjusting the lifetime exemption amount downward, possibly to $3.5 million per individual.

• Elimination of the stepped-up basis for capital gains at death. Currently, inheritors enjoy the benefit of a stepped-up basis on capital assets (certain investments such as stocks and bonds, real estate, cars, etc.) upon a decedent’s death. This means that appreciated capital assets previously owned by the decedent are valued at the fair market value as of the decedent’s date of death for tax purposes. As such, any capital asset appreciation that occurred prior to the decedent’s death is not subject to capital gains taxes under current federal estate tax law. The Biden tax plan seeks to eliminate the stepped-up basis, which means that any appreciation on capital assets held by the decedent during his or her lifetime would be subject to capital gains taxes. Further, Biden’s tax plan has proposed a long-term capital gains tax increase that could double the capital gains tax rate for wealthy individuals.

Now that the Democratic Party controls both the House and Senate, it is very likely that tax reforms will be made. However, with other pressing issues including COVID-19 and economic relief, many believe that changes to the current tax structure will likely not occur until the end of 2021 and will not go into effect until 2022. As such, this year should provide time to consider making gifts, perhaps recognize capital gains early, or make other adjustments to address the impact these changes could have on your estate plan.

References for additional information:

Biden’s Tax Proposals and Estate Planning (Skadden)

What Does A Biden White House Mean For Estate Planning? (Forbes)

10 Biden Tax Plans (MarketWatch)

Joe Biden’s Tax Plans for the Next Few Years (Kiplinger’s)

2020-2021 Capital Gains Tax Rates - and How to Calculate Your Bill (NerdWallet)

With the end of 2020 in sight, a few last minute estate planning considerations provided by JD Supra can help you close out this turbulent year with confidence and a clean slate:

1. Make gifts of cash to public charities to take advantage of tax laws;

2. Have discussions regarding your estate plan with your family over the holidays;

3. Review and update your estate plan every few years or after a major life event such as a birth, death, or marriage;

4. Check account ownership and beneficiary designations to make sure they still reflect your wishes;

5. Make sure your family knows how you would like your affairs to be handled in the event of your incapacity and where all pertinent documents (powers of attorney, living wills, advance directives, etc.) are stored;

6. Investigate life insurance options for the benefit of your dependents or loved ones; and

7. Finalize or pledge charitable gifts that qualify for 2020 tax purposes.

Wishing you joy and happiness this holiday season, and a safe and bright start to a brand new year!

Avoiding probate is a common goal for those establishing estate plans. The probate process is the system through which the assets included in a deceased individual’s estate are distributed according to wishes expressed in the decedent’s will, or through state intestacy laws if no will was created. The transfer of assets through a probate court can result in attorney and court fees as well as other expenses and delays that many individuals wish to avoid. Only assets that do not transfer automatically upon an individual’s death are included in that individual’s estate. As such, setting up assets to transfer automatically upon death can reduce the size of an estate, thus minimizing costs and complexities associated with the probate process. Below are some helpful tips shared in a recent Forbes piece highlighting some of the best ways to utilize an estate plan to avoid probate:

1. Payable-on-Death Designation: Designating beneficiaries on life insurance policies, retirement, investment, and other accounts, as well as payable-on-death beneficiaries on simple checking and savings accounts will ensure the non-probate transfer of financial assets.

2. Transfer-on-Death: Indiana and Ohio both allow individuals to set up transfer-on-death beneficiaries on titles to real property and vehicles. Upon the original owner’s death, the transfer-on-death beneficiary will receive such property outside of the probate process.

3. Joint Ownership: By adding a joint owner to property or financial accounts, assets belonging to the original owner can become the property of the joint owner seamlessly upon the original owner’s death without the involvement of the probate court.

4. Revocable Living Trust: Some individuals place their assets into a revocable living trust during life. Upon the grantor’s death, assets that have been transferred into the trust will pass to beneficiaries according to the terms of the trust without ever going through probate.

5. Gifts: Finally, you can reduce the size of your estate by making gifts of property during your lifetime that you would have otherwise made through a will after your death. A smaller estate can result in lower probate court fees and a more timely distribution of your assets after your death.

Although assets passing through the probate process will eventually be distributed according to your will or state intestacy laws if you do not have a will, taking a few fairly simple steps now to ensure that your assets will transfer outside of the probate process can save time, money, and energy for loved ones down the road.

In a world of heavy news, time for some lighter reading! We are often warned about the potential for trouble if we neglect our estate plans, but even celebrities are not immune to estate planning blunders. For the average American, estate planning failures can lead to a messy and potentially expensive legal process for loved ones left behind. For celebrities, such mistakes are often magnified by the typically massive value and public nature of their estates. Sonny Bono, Marilyn Monroe, Michael Jackson, and Prince are just a few celebrities whose assets became tied up in unintended legal battles after they passed away. For a little brain break, check out this ThinkAdvisor piece detailing thirteen surprising celebrity estate planning calamities.

While establishing a comprehensive estate plan is essential, your plan could prove useless if your loved ones do not know how to access it when needed. Hunting for an estate plan during an emergency situation is not something a scared or grieving loved one should have to do. Especially in consideration of the unpredictability and seriousness of COVID-19, it is important to make sure your will, powers of attorney, and living will are easily accessible should you become ill or incapacitated. In a recent article, Forbes provides some ideas for storing a “go package” containing your most important estate planning, insurance, and medical documents in a convenient spot where it can be quickly retrieved by you or a loved one.

Recommended documents and information to compile in the “go package” include:

1. Medical power of attorney or advance directive;

2. Living will;

3. Financial power of attorney;

4. Last will and testament;

5. Living trust agreement;

6. Copy of insurance and/or Medicare card and information;

7. General medical history including chronic conditions, prescriptions, supplements, over-the-counter medications, and allergies;

8. Full legal name, birth date, and Social Security Number;

9. Emergency contacts; and

10. Contact information for medical providers.

Storing these items in a spot near the exit to your home where the package can be easily picked up on the way out the door or in another conspicuous location that is known to your loved ones can save time and stress in an emergency.

In the face of a global crisis, I wish you comfort in holding on to what is important and trusting that these times will pass. As uncertainty abounds, please feel free to continue to contact me with any questions or planning needs. Document review and consultations are always free of charge. I will continue to offer free health care powers of attorney and living wills until July 4th, 2020. If you or a loved one need these or any other planning documents, please be assured that I work quickly to deliver documents promptly and coordinate witnessing and notarization.

Through this unsettling time, some have taken the opportunity to pontificate, some to take action, and others to simply tune out the noise and wait for it to end. The beauty lies in the fact that we live in a country where we are free to do as we choose, yet recognizing that the vast majority of Americans are suffering, sacrificing, and doing their individual best for the sake of all. Thank you to all of the helpers across every industry giving it your very best when we need you the most. May we always remember those who choose with humility and courage to stay standing in our corner through our greatest trials refusing, without exception or excuse, to let us fall.

*EXTENDED THROUGH 7/4/2020*