As I write this blog post, the Iowa caucuses are less than a week away. Around the time you read this post, we will have the first results of a primary season that will eventually determine who will represent the Democrats in the fall election and face President Trump. With months to go before votes are cast in November, many outcomes remain possible. What should you be doing now with respect to your estate planning in anticipation of the election results?
It seems to be a safe bet that if the President is re-elected and/or Republicans continue to hold 51 seats in the Senate following the elections, the estate planning landscape in 2021 will remain much like what we have now. However, remember that many of the current tax laws are scheduled to sunset after 2025. Among other changes, the historically large estate, gift and generation skipping transfer tax exemption amounts would be cut in half at that time.
On the other hand, if the Democrats retain a majority in the House, gain control of the Senate, and any of the leading candidates for the Democratic Party’s nomination is our next President, it is highly likely that we will see significant shifts in tax policy.
With respect to our federal estate and gift taxes, including the federal generation skipping transfer tax, a government entirely under the control of members of the Democratic party is likely to reduce the current estate and gift tax exemptions, increase transfer tax rates, and possibly restrict the use of many of the estate planning techniques that families have used for years to transfer wealth. If changes occur, they could come months after the new Congress and administration takes office, or they could be retroactive to as early as the beginning of 2021.
As someone who works with wealthy families who seek to thoughtfully benefit future generations, I write this post to encourage you to begin thinking now about how you would respond following the election and, somewhat later, by the sunsetting of current laws after 2025 if it appears that we will have a dramatically different estate and gift tax environment. For example:
- Would you (and/or your spouse if you are married) give away property and use up your remaining estate and gift tax exemption amount?
- Would you create new trusts for your spouse, children or grandchildren?
- Would you sell property to a grantor trust and thereby leverage your estate and gift tax exempt amounts?
- Would you change your plan to increase your philanthropic gifts?
- Would you revise or accelerate your plans for succession of ownership of your family business?
- Would any of these actions require or suggest changes to your family’s and business’s governance systems?
If the answer to any of these questions is yes, then I encourage you to begin talking to your estate planning counsel now.
The reason I encourage you to begin conversations now – and not wait until after the elections – is that with estate and gift tax exemptions at historically high levels ($11,580,000), your response to changes in tax policy likely will involve large and impactful decisions, gifts and transactions. These responses will merit thoughtful, careful deliberation about such questions as:
- How much can you afford to give?
- What assets should you give?
- Who do you want to benefit with your giving?
- How do you want these gifts to affect the lives of the people or institutions you intend to benefit?
- If you create trusts, how do you design them so they are seen by the beneficiaries as gifts of love that help each beneficiary achieve his or her full potential, and not as a burden?
- Who will be the trustees of these trusts?
- If you have existing trusts in place now, are they appropriate receptacles for the gifts, or do they require modification or decanting?
These are difficult questions. For most clients, it takes multiple conversations between spouses, with family and with trusted advisors before the answers become clear and comfortable.
For these reasons, we are encouraging clients to begin the planning process now. Doing so allows you to engage in careful, deliberate, unpressured, thoughtful planning. If it appears likely that there will be a significant change in tax policy as a result of the elections, you will be prepared to implement a plan before a new Congress and new administration can enact changes in the tax laws that limit or restrict this planning.
And even if tax policy does not change, you likely will learn new truths about yourself and your family, what your wealth means to you, your goals and your planning. This understanding will help you assess whether your existing planning needs refinement to best meet your goals, objectives and the needs of your family.
For more information, contact your Warner attorney or Mark Harder at mharder@wnj.com (or at 616.396.3225).
