Possible Limited Duration of Increased Wealth Transfer Tax Exemptions Strongly Encourages Immediate Action

The current tax laws, which took effect on January 1, 2018, temporarily double the estate, gift, and generation-skipping transfer (GST) tax exemptions from $5 million (adjusted annually for inflation) to $10 million (also adjusted annually for inflation). For 2020, the inflation-adjusted exemption amount is $11.58 million per person. The doubled exemptions are currently scheduled to expire January 1, 2026, when the estate, gift and GST tax exemptions will revert back to $5 million, adjusted for inflation.

It is prudent for wealthy individuals and families to understand that tax legislation can change at any point, including in post-election years such as 2021. It is very possible that Congress and the president may act to reduce the exemption amounts sooner than 2026, in which case the opportunity to make use of the larger exemptions to shelter otherwise taxable transfers from transfer tax may be lost.

There are a variety of options and planning techniques that can be used to take advantage of the current increased exemption amounts and that can be tailored to fit your circumstances and family goals. We strongly encourage you not to wait to consider utilizing the increased exemption, as many sophisticated planning techniques take time to implement.

Changes in exemption amounts may also have a significant impact on many existing plans and can cause unexpected results. For example, wills and revocable trusts frequently contain formula bequests based on estate tax exemption levels, and a large increase or decrease in exemption amounts can mean these formula bequests no longer match a client’s expectations and wishes.

It is critical to review your existing estate plan in light of the historically favorable exemption amounts and to consider the opportunities for planning and transfer tax savings afforded by these increased exemptions while they remain available. In addition, interest rates are particularly low at the moment, which is advantageous for estate planning. Please contact a member of the Private Wealth Group to discuss the effect of the existing law and potential future law on your planning.