“The best laid schemes of mice and men often go awry.”
The estate planner’s corollary would be that Robert Burns was an optimist.
Now that we have survived the 2020 presidential election, we have new plans to consider and old plans to adjust; all with the knowledge that further changes are coming.President-elect Biden’s current plans for the estate and gift tax regime, and the income tax consequences of death, are summarized here:
- The estate tax exemption amount, currently $11.58 million, will be reduced by at least 50%.
- The gift tax exemption amount will be reduced to $1 million.
- The step-up in tax basis in investment assets at death will be eliminated, for the most part. Alternatively, the built-in gains in investment assets will be taxable at death, rather than the built-in gains being deferred until the beneficiaries of the estate sell the assets (subject to certain limits).
- The estate and gift tax rate will increase from 40% to 45%.
Whether, and when, these proposals become law is a matter of speculation for many reasons, including that control of the United States Senate will not be determined until January after the special elections in Georgia.
What do you do in these uncertain times?
First, discuss your estate plans with family members and trusted legal and financial advisors. In March of this year, I posted an article entitled “Estate Planning During the COVID-19 Pandemic,” which sets out questions to consider when reviewing your estate plan. Use that article as an outline for your discussions with family members and advisors.
Second, prepare a list of your assets, with particular emphasis on investment assets and your current tax basis (generally the cost of the investment asset). With the potential elimination of stepped-up basis at death, or taxation of built-in gains at death, income tax planning with investment assets will become much more important.
Third, consider your income needs for your lifetime, as well as income needs for a surviving spouse, children, and other family members.
Fourth, consider how conservative or aggressive you can be when looking at estate planning options and investment strategies.
With the proposed substantial reduction of the estate tax exemption, publications and articles are already discussing (and will continue to do so) tax-sensitive estate planning techniques such as charitable remainder trusts, charitable lead trusts, irrevocable trusts for the benefit of a spouse, and sales of assets to intentionally defective grantor trusts. Whether any of these techniques are appropriate for your estate planning will depend upon a comprehensive review of the information gathered under the steps noted above, and with responses to the questions set forth in my March 2020 estate planning article.
A one-size-fits-all plan is not possible. Cookie-cutter plans may leave you with cookie crumbs.
If you have questions or concerns about your current estate plan or about future planning and would like to have a review of your current plan and a discussion of possible future arrangements, please call or e-mail one of the estate planning attorneys at Woods Rogers PLC.