The election might bring about a lot of changes, especially to the current federal tax laws.
One of the potential biggest impacts would be on estate planning, so if you’re looking to transition wealth to the next generation, now is the time to do so.
The current lifetime gift tax exemption amount is $11.58 million dollars per individual, which is the highest it has ever been. It’s scheduled to sunset at the end of 2025 and revert back to a $5 million exemption level, adjusted for inflation, but that timeline could be shortened depending on the results of the election or other future congressional action.
While we don’t expect any potential changes in the tax law before early 2021, we think it is best to consider taking action before the end of this year to protect your family’s wealth.
In addition to the reduction in the estate tax exemption, some estate planning strategies that can move assets out of your taxable estate may be eliminated or made less effective in the relatively near future, including several trust options.
Another reason why now is a critical time to transfer wealth: in recent years, the Treasury has indicated it will not try to recapture or “claw back” the exemption used through lifetime gifts if the exemption later decreases. This means those who make gifts under the current high exemption amount may ultimately succeed in transferring more wealth to their beneficiaries than they would otherwise be able to transfer on death, if the exemption amount is reduced next year.
Given the current climate of uncertainty and change, we suggest you consider being proactive in protecting your wealth from potential adverse tax law changes. Wealth transfer strategies take a lot of planning and it’s best to work in partnership with your CPA, estate attorney and financial advisor to try to determine what options would work best for you.