2021 will most likely usher in major changes to Estate Tax Law:
Federal Estate/Gift Tax Exemption: The current federal estate/gift tax exemption of $11,580,000 is scheduled to “sunset” in 2025. The 2021 Democratic platform is to reduce the exemption to “historic norms” which are anticipated to be approximately $5,000,000. If the loss of the current exemption has significant impact on your taxable estate, you may want to consider utilizing the $11,580,000 exemption with the following:
o Outright gifts of appreciating assets to children/grandchildren
(such as shares of family businesses)
o Trusts
o Equalizing assets between spouses
Step-up in Basis: Currently, upon a death, a decedent’s assets are “stepped-up” to fair market value thereby saving the capital gain on lifetime appreciation and administrative nightmare of valuing the asset for basis purposes. The “step-up” is on the tax chopping block for 2021.
IRAs: An IRA inherited by anyone, other than a surviving spouse, must be distributed to a beneficiary within 10 years of a decedent’s death. All distributions are subject to income tax. If an estate is of taxable value, conversion to a Roth IRA might be advantageous. The IRA owner has an income tax liability in the year of conversion. However, the advantage is that Roth owner and beneficiaries get tax-free growth and tax-free distribution in the future. This conversion would be advantageous in 2020 as income tax rates for taxable income greater than $400,000 will likely be increased in 2021.
Tools for Planning Ahead…
Unfortunately, it looks like Covid-19 will be with us for a while. For peace of mind, the following documents should be executed by all adult family members (including children over the age of 18) in order for health care providers to be able to communicate with family members:
You may also want to consider updating your Wills and Living Wills.
If we can assist you with any planning matters, please do not hesitate to contact us.