MLR

Estate Planning: Do You Still Have Time?

As Congress and the Biden Administration look for sources of funding for new spending, one source of funding that has been proposed would result in significant changes to the estate and gift tax rules.

The Biden Administration has proposed to reduce the amount that can be transferred at death without paying taxes to $3.5 million and limit the amount of lifetime gifts to $1 million.  These provisions, and many others, are included in legislation introduced in the U.S. Senate on March 25, 2021 by Senators Sanders and Whitehouse.  The effective date for this change in the proposed legislation would be January 1, 2022, which would give individuals time to plan and execute transfers under the current law which has a unified lifetime estate and gift tax exemption amount of $11.7 million.  However, it should be noted that these and other proposed changes may become effective on the date of enactment potentially reducing the amount of time for planning and execution.

Other significant changes in proposed legislation include increases in the estate tax rate from a current 40% tax rate to a graduated rate system of 45% to 65%, limits on annual exclusion gifts, limitations on valuation discounts, changes to grantor trust estate taxation, restrictions on GRATs, limitations on generation-skipping trusts (i.e. dynasty trusts), and eliminating the step-up in basis of inherited property and/or treating property transferred by gift or at death as if sold for fair market value.  We cannot know which provisions will be included in the final legislation or if any legislation will be enacted, but these proposals are at least an indication of what types of changes could become law.

The window of opportunity for estate and gift tax planning and execution under the current rules and thresholds may be closing.  For this reason, we recommend that you contact your tax advisor or estate planning attorney to discuss how these potential changes could impact you and your family and steps that may be taken to reduce that impact.

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