November is finally here - which means the relentless political ads, phone calls and social media posts are (thank goodness) coming to an end. As we spend the next few weeks discussing and determining the future of our country for the next four years, it’s important to prepare for potential changes to come - specifically changes regarding your estate taxes.
A Reminder About the Tax Cuts & Job Acts (TCJA) of 2017
President Trump enacted the Tax Cuts & Job Acts (TCJA) in 2017. Among other things, this act greatly increased the amount of money a person or couple could pass down to children or charity free from estate taxes. Prior to the TCJA, this number was $5,490,000 for individuals or $11,980,000 for couples in 2017. Any amount gifted or passed on above this amount would be taxed at a rate of 40 percent. Since the passing of the TCJA, the exemption limit has increased to $11,580,000 per person or $23,160,000 for couples.1
This legislation is meant to remain in effect until January 1, 2026 when it would, presumably, revert back to pre-TCJA exemptions levels (adjusted for inflation). Unless a new president, backed by Congress, reverses these orders.
If Biden Wins...
Biden is cited as saying he’d repeal TCJA benefits for high-income filers - which, in all likelihood, would include the TCJA’s higher tax-exempt limit for estate inheritances and gifts.2 If this becomes the case, this would affect those who may be planning on passing along an estate inheritance greater than $5.49 million (this number is based off of 2017 pre-TCJA numbers, but would be adjusted for inflation).
If Trump Wins…
If Trump is elected for a second term, it’s likely that the benefits outlined in the TCJA of 2017 would be upheld until their original expiration date in 2026.
What Should You Do to Prepare For a Potential Estate Tax Change?
For now, it's a wait and see approach, but this is definitely something we will be discussing with many clients and their estate planning attorneys in 2021. If Biden wins the election, we could see tax changes - including estate and gift tax exemptions - go into effect as early as 2021. This may also be dependent on the Senate and House majority, of which Biden may need to pass such tax legislative changes.
Few elections years in history have matched the volatility and uncertainty of 2020. Whether we’ll continue on the next four years with the same Commander in Chief or experience a change in leadership remains to be seen. But once the election results are in, don’t hesitate to reach out to us HERE to determine how your tax obligations may be affected, and what you can do now to prepare for what's ahead.