By Jason Livingston, Esq.
On Nov.7, a few days after the 2020 presidential election cycle, former Vice President Joe Biden was declared by various media and other outlets to be the President-elect.
Financial and legal advisers have been combing through President-elect Biden’s proposed tax plan for months in preparation for this possibility and the direct impact it could have on many of their clients. Estate planning attorneys are no different, as there are potentially significant estate tax implications brought forth by the proposed plan that could result in the necessary overhaul of many clients’ current estate plans.
According to the estate tax laws for 2021, the federal gift and estate tax exemption amount (the amount that an individual can transfer without paying any taxes) for an individual is $11.7 million. For married couples, this means $23.4 million of available exemption. In New York state, the 2020 individual exemption amount is $5.85 million. The state exemption for 2021 and the following years will see these amounts rise even higher as they are adjusted for inflation. However, the current laws controlling the federal exemption amount is set to sunset (expire) as of Dec. 31, 2025. After Jan. 1, 2026, these exemptions will reduce by nearly 50%.
President-elect Biden has outlined numerous potential changes he would like to make to the estate tax landscape during his administration. One change most estate planning attorneys and financial advisers note is the potential for accelerating the sunset for the current exemption amounts. President-Elect Biden has indicated that he would like to bring the exemption amounts as low as $3.5 million per individual. However, making this change would require passage by the Senate. At the time of the preparation of this article, the final political make-up of the Senate remains unknown, pending the results of the runoff election for two Senate seats in Georgia in January 2021. If the Republicans remain in control of the Senate following the runoff elections, it may be difficult for laws such as this to be passed, but not impossible if bipartisan efforts result in votes favoring the proposed changes. In addition, President-elect Biden has also discussed potential increases to capital gains taxes and removing the “step-up in basis” provisions of the current tax code that have allowed clients numerous tax-saving opportunities in the past. Both of these changes could drastically impact most clients’ current estate plans.
The shift from President Trump to President-elect Biden should provide clients with the impetus to begin an open dialogue with their financial and legal advisers regarding the potentially shifting estate-tax environment. Many advisers may see clients making large gifts in anticipation of the regime change in the coming months. Estate planning attorneys in particular are placing a premium on flexible plans, which allow clients of any net-worth to weather the unknown political environment and numerous potential tax law changes. For those who are unsure whether now is the right time to make changes to their estate plan — it is important to keep in mind the current climate of COVID-19 and the economic stress felt by many. It is likely that any tax changes relating to estate taxes will be delayed as President-elect Biden first tackles what many consider to be the key priorities for his incoming administration (such as the current pandemic).
In the event any of these changes come to fruition in the very near future, many clients will be looking to their attorneys and advisers to assist with what will likely become more sophisticated, expanded and tailored planning than what has been traditionally needed in the past to avoid large tax bills upon death.
Clients can be assured that their advisers are closely watching these potential changes and are always available to strategize any possible tax landscape and resulting changes to a client’s current plan.
Estate planning has always faced a certain amount of uncertainty based on the natural fluidity that can accompany changes in laws — it is this comfort with uncertainty that will allow estate planning attorneys and advisers to help clients make the best choices for not only their futures, but the financial futures and well-being of their families for decades to come, no matter the political backdrop.
Jason Livingston is a trusts and estates attorney at the Law Offices of Pullano & Farrow. He concentrates his practice in the areas of estate planning, business succession planning, long-term care planning, estate administration, trust administration and guardianship petitions. He can be reached at 585-730-4773. For more information, visit https://lawpf.com