The recent $1.9 trillion COVID relief bill is planned to be followed by further economic stimulus measures under the Biden administration. It is widely anticipated that these additional stimulus packages will be paired with proposals for various tax increases on those earning over $400,000 annually. One such proposal is to increase federal estate tax revenue by lowering the current estate and gift tax exemption of $11.7 million per individual to either the previous $5 million exemption (adjusted for inflation), or an even lower amount. Current reports indicate the timing for this decrease is anticipated to be delayed until 2022, providing a possible opportunity for certain advanced estate planning in 2021.
An individual can currently make non-taxable gifts of $15,000 to any number of people using the annual gift exclusion. Any gifts that exceed the $15,000 annual exclusion amount are required to be reported to the IRS on a gift tax return, even though no tax may be due at the time of the gift. The amount of the gift over $15,000 reduces the current $11.7 million exemption available to be used on the value of the estate at death. Amounts exceeding the estate exemption are subject to federal estate tax.
For those whose estates are anticipated to exceed $5 million, additional planning to use the excess exemption in 2021 may be advisable. Various strategies include making gifts to an irrevocable trust, either for the benefit of a spouse or children, or using a grantor retained annuity trust (GRAT), among others. The Spousal Lifetime Access Trust (SLAT) is one type of trust that allows the beneficiary spouse to use the trust assets and receive distributions, but the assets are not included in the estate at death. Now would be a good time to review your estate plan with your attorney to determine what opportunities may be available while there is still adequate time in 2021 to implement a strategy to use the higher exemption before it is gone.
For additional information, please contact KDDK estate planning attorneys: