Estate Planning With 2021 Vision

Monday, October 12, 2020

Original article by >

You can’t predict the political future but you can plan for it! Here are some estate planning ideas for consideration based on uncertainty as to what proposed income tax law changes might be in 2021 and beyond. Keep in mind that due to fluctuating political winds there are also proposals on the table related to estate, gift and generation-skipping taxes. Many of these have been bandied about for a while now; we would be remiss if we did not mention them:

  • Reduce the current estate and gift tax (and probably the generation-skipping tax) exemption from $11.58 million per person ($23.26 million for married couples) to an inflation adjusted $5.49 million per person ($10.98 million for married couples).
  • Increase the current estate, gift and generation-skipping tax rates from a flat 40% to a progressive scale with rates from 40% to 77%.… or more.
  • Limit the number of $15,000 annual exclusion gifts.
  • Eliminate the use, or reduce the effectiveness, of valuation discounts.
  • Eliminate the use, or reduce the effectiveness, of Intentionally Defective Grantor Trusts (“IDGT”) and Grantor Retained Annuity Trusts (“GRAT”).
  • Eliminate the basis step-up at death.
  • Impose a capital gains tax at death on unrealized gains.

Not all of these will have the same impact on every TFGFA client, but if any of them might be of particular concern to you in your situation, you may want to discuss your options before the end of 2020 in order to mitigate the effect on your portfolio and estate:

  • Make gifts to use up some or all of your $11.58 million exemption. The IRS has already said that gifts in excess of a future reduced exemption amount will NOT be “clawed-back” for purposes of computing the estate tax on your estate. If you are a NY resident and survive the gift by three years, the gift will not be taken into account in computing the NY estate tax on your estate.
  • Make gifts in excess of your $11.58 million exemption and pay a gift tax at a 40% rate. Unless you believe that the gift and estate taxes will be repealed, or that rates will be reduced, paying a gift tax is less expensive than paying an estate tax.
  • If you are married and concerned that the gifts would reduce cash flow to an unacceptable level, consider creating a Spousal Lifetime Access Trust (“SLAT”) where one spouse uses his/her gift tax exemption to create a trust for the other spouse.
  • Make gifts of other than cash or marketable securities in order to take advantage of valuation discounts.
  • With interest rates at historical lows (the September Applicable Federal Rates (“AFR”) are 1% or less), make AFR loans to family members and/or create GRATs. See our prior article HERE.

The suggestions above are just the tip of the iceberg. There are additional estate planning tactics like putting your gifts into Intentionally Defective Grantor Trusts (“IDGTs”), and other options we would be happy to discuss with you.

Reach Out To Us: There is no crystal ball. However waiting until after the election, and the myriad delays promised due to the pandemic and the counting of the mail-in ballots, may prevent you from accomplishing what financial moves you might want to make before December 31st. Now is the time to set up, review, or to finalize your estate planning documents with your attorney, Fuoco Group accountants and your TFGFA financial advisory team all working in tandem.

Feel free to contact me, Paul Wieseneck, CPA, Senior Financial Advisor, at 561-209-1102, with any questions regarding financial planning for your estate. At TFGFA, we believe in customized investment portfolio design and personalized asset management.