With the election quickly approaching on Tuesday, November 3rd, we wanted to alert our clients and friends to the potential risk of significant tax law changes for high net worth individuals if administrations change. While the polls are telling, we have no certainty as to the results, and may have no certainty until weeks after November 3rd. However, if the Democrats do win a majority of seats in the Senate and Mr. Biden wins the presidency, one thing is certain: the Democratic tax plan clearly states that taxes relevant to you will increase significantly.
Our focus in this Update is on the potential increase in estate and gift taxes. If you would like to preserve the tax exemptions you have available to you today, you must implement planning prior to year-end and use your exemptions this year. Otherwise, you risk losing the bulk of those exemptions under a Democratic administration.
The exemptions from Federal gift and estate taxes are currently $11.58 million per person ($23.16 million per married couple). The Democratic tax plan indicates that the exemptions for gift and estate taxes will be dramatically reduced (and may even be decreased to as low as $3.5 million per person) in a 2021 tax law change. That could result in an eventual potential tax loss of over $3.2 million per person in transfer taxes at death (or over $6.4 million per couple) if the current estate tax rate remains at 40 percent. If that tax rate also increases under a new tax law, the potential tax loss would be even greater.
If you would like to preserve the exemptions you have today, you need to complete the planning (and use your remaining exemption) prior to the end of 2020. Otherwise, there is a real chance that any tax law passed any time in 2021 will be made retroactive to January 1, 2021. If you choose to undertake planning, delaying much past the beginning of November may foreclose the ability to finish the planning and use your exemptions prior to year-end.
While it is your decision to act, if you would like our assistance, please reach out to us immediately to discuss the possibilities and potentially begin the planning process. Otherwise, you may lose the chance to preserve the current gift and estate tax exemptions (and thus potentially waste millions of dollars in tax savings).
We remain at your service.
PartnerAnthony Vitiello’s practice is dedicated to sophisticated tax planning for individuals, businesses, estates and trusts. As Chair of the firm’s Taxation and Estate Planning Practice Group, he places a particular emphasis on ...