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!

It’s a new year and that means lots of new and exciting things are on the horizon…like gift and estate tax changes! For the year 2020, the federal gift and estate tax exemption will be $11.58 million per person, or $23.16 million for a married couple. This means that each individual may pass up to $11.58 million to his or her heirs without incurring federal gift or estate taxes. So, a married couple may pass up to $23.16 million to their heirs free of federal estate and gift taxes. However, the last surviving spouse must remember to elect to make the predeceased spouse’s unused exemption amount portable when completing the estate tax return for the predeceased spouse. Spouses can pass an unlimited amount of assets to each other free of federal estate and gift taxes through the marital exemption, but the portability election must be made for a surviving spouse to take advantage of the predeceased spouse’s unused exemption amount.

The annual gift exclusion amount will not change this year, staying at $15,000 per person. This means that each individual can give up to $15,000 to as many individuals as they wish without gift tax ramifications. As such, a married couple together can give up to $30,000 this year to children, grandchildren, or other loved ones without incurring gift taxes and without detracting from their lifetime exemptions.

Both Indiana and Ohio remain estate and inheritance tax-free states, so no state level estate and gift taxes will be imposed in these states in 2020.

For more information on federal estate and gift taxes in 2020, check out this article published by Forbes.

While many will be utilizing free time this month to vacation or escape the chaos of the holidays, you may be taking advantage of some time off to work on your New Year’s resolutions. Consider adding an estate plan to your list of goals for the coming year. To get you started, Kiplinger’s recently published a comprehensive list of the ten most common estate planning mistakes. These ten considerations provide a good starting place if you hope to address your estate plan in the year to come.

The top 10 estate planning mistakes according to Kiplinger’s:

1. No “real” plan.

2. Failure to update.

3. No disability/long-term care plan.

4. Disregarding estate tax liability.

5. Improper asset ownership.

6. Lack of liquidity.

7. Overlooking beneficiary income tax implications.

8. Leaving out measures for minor children.

9. Forgetting to consider charitable gifts.

10. Ignoring the impact of beneficiary designations on retirement accounts.

Best wishes for a Merry Christmas and a Happy 2020!

For 2019, the IRS has announced that the lifetime estate and gift tax exemption amount has increased to $11.4 per person, or $22.8 million for a married couple. This means that an individual may pass $11.4 million in assets without facing federal estate taxes. Married couples may still pass assets to each other upon the death of one spouse free of federal estate taxes. The surviving spouse may then elect to utilize the deceased spouse’s exemption amount (called “portability”) which would allow the surviving spouse to pass up to $22.8 million in assets free of federal estate taxes.

The annual gift exclusion amount remains at $15,000 for 2019. This means that each individual can gift up to $15,000 to an unlimited number of individual recipients without cutting into their $11.4 million individual lifetime estate and gift tax exemption allowance .

Check out this 2019 estate tax update from Forbes for more information on 2019 estate taxes.

You have surely heard about the new tax legislation signed into law by President Trump at the end of 2017, but what does it mean for your estate plan?  Below are a few key changes to the tax law that can impact estate planning:

• The annual federal gift tax exemption increases to $15,000 this year, to be adjusted for inflation each year thereafter.  This means that each individual can give up to $15,000 in gifts to as many individuals as they would like in 2018 without touching their lifetime exclusion amount.
• The lifetime gift and estate tax exclusion amount increases to $11,200,000 for each individual as of January 1, 2018, and will increase with inflation each year through 2025.  This means that each individual can pass assets worth up to $11,200,000 during life and/or at death without incurring federal gift or estate taxes.
• The lifetime exclusion amount is still portable, meaning a deceased individual's unused portion can be utilized by a spouse.  As such, the exclusion amount for a married couple for 2018 is effectively $22,400,000.
• On January 1, 2026, the lifetime exclusion amount will drop back to the 2017 level ($5,490,000 adjusted for inflation) per individual.
• The federal estate tax rate remains 40% for those who exceed the lifetime exclusion amount.

Wishing you all the best for a happy and healthy 2018!

Whether you are planning a wedding this year, or you have been married for 50 years, this helpful article from A Practical Wedding outlines four major planning discussions you should have with your spouse.  Writing your wills, purchasing life insurance, preparing living wills, and documenting various aspects of life can go a long way toward making an unexpected situation much simpler for your spouse or other loved ones to manage.

Thank you for a wonderful 2016, and best wishes for a safe and happy 2017!