Estate Planning After the 2020 Election

With the winding down of election season and impending year-end, now is the time to consider whether it would be beneficial to implement wealth transfer techniques in the event of changes to estate and gift tax laws. In this alert, CSG’s Trusts & Estates Group highlights key areas and strategies worth considering.

I. Federal Estate Tax Exemption (“Exemption”)

The current Exemption is $11,580,000 per person with a top rate of 40%. In 2021, the Exemption will be increasing to $11,700,000. On January 1, 2026, unless Congress takes action, the Exemption will decrease to approximately $6,500,000. However, if Democrats control the Senate after the runoff elections in Georgia, as well as the presidency and House, the tax laws could be changed to reduce the Exemption to $5,000,000 or even lower under current proposals. It is possible that these changes could be retroactive to January 1, 2021.

II. Wealth Transfer Strategies

Given the potential decrease in the Exemption, you may want to consider wealth transfer strategies now to take advantage of the current high Exemption and reduce the size of your estate. The IRS has already ruled that any amounts gifted which exceed a lower future Exemption will not be “clawed back” and cause Federal estate tax.

Gifting strategies range from simple outright gifts to children to more complex techniques such as the creation of irrevocable trusts for children or a Spousal Lifetime Access Trust (SLAT) which would include the donor’s spouse as one of the beneficiaries. An advantage of a SLAT, unlike trusts solely for children, is that the donor retains indirect access to the gifted assets through his or her spouse. Other options include sales to grantor trusts, loans to family members or the creation of a Grantor Retained Annuity Trust (GRAT). A GRAT does not involve a gift but can be an effective means to transfer wealth to children in light of low interest rates.

III. Conclusion

Given the uncertainty as to which party will control the Senate and the benefits of gifting now, we recommend that you consider making gifts before the end of the year.

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