Election Year Estate Planning – Why You May Need to Act Fast!

With a push by the Democratic party to restore federal estate taxes to their historic norms, taxpayers need to act now before Congress passes legislation that could adversely impact their estates. Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a federal rate of 40 percent (with some states adding an additional state estate tax). However, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s basis equals its fair market value on the date of the decedent’s death. Thus, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death.

If the election results in a political party change, it could mean not only lower estate and gift tax exemption amounts, but also the end of the longtime taxpayer benefit of stepped-up basis at death. To avoid the negative impact of these potential changes, it would be prudent to consider updating your estate plan before the year-end.

There are many strategies to minimize the negative impact of the tax law changes on your estate plan, but the key is planning early while we still have the high exemption rate. Some of the possible planning strategies include: Irrevocable Life Insurance Trusts; Gift Trusts; Installment Sale to Grantor Trust; Spousal Lifetime Access Trusts (SLATs); Intrafamily Notes and Sales.

If you have concerns over this potential change, we encourage you to contact us today to schedule a meeting to review strategies that may help you minimize your exposure before it is too late.