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What changes could come to the field of estate taxation if a new President takes office?

The 2020 US election is fast approaching and the outcome of the race for the presidency could have far-reaching effects. From an estate planning perspective, estate tax minimization may be particularly affected by the result. Estate tax receipts by the federal government have been dramatically diminished by recent changes to the tax code. In 2020, individuals with less that $11.58 million in assets and couples with less than $23.26 million in assets are exempt from the estate tax. Consequently, fewer than 0.1% of Americans die rich enough for their estates to owe any federal estate tax at all; out of roughly 2.7 million Americans who die each year, only the richest 1,700 are subject to the estate tax. Even the few taxable estates are taxed at the lowest rates since 1932. All the top Democratic candidates have proposed changing the current federal estate tax laws to reduce the budget deficit and to combat wealth inequality. For high net worth individuals and couples who are interested in reducing their heirs’ estate tax exposure, now is an ideal time to consider creating or updating your estate plan so that, in the event of a political shakeup, you have minimized your estate’s tax bill to the fullest extent possible.

Estate Tax Changes Could Impact All of Us

No matter your political party or personal stance on taxation rates in the USA, it is important to understand the changes that might occur after the next election. While Donald Trump and many other Republican politicians rail against the estate tax (often called the “death tax” by its opponents), every leading Democratic presidential candidate plans to increase estate taxes on the wealthy. For example, Bernie Sanders has proposed a reduction of the estate tax exemption from $11.58 million to $3.5 million along with an increase in the marginal rates paid by the extremely rich. Mike Bloomberg (presently the ninth richest person in the world) actually has an even more dramatic proposal for taxing the estates of the very rich: In addition to similarly reducing the exemption from its current level, Bloomberg would eliminate stepped-up basis, an accounting loophole that wipes out capital gains on inherited assets and allows “enormous wealth to move virtually untaxed from generation to generation.”

Rather than taking a wait-and-see approach, it may be wise to take the time now to plan for any possible estate tax changes that could come. One step our high net worth clients have been taking is to maximize their gift giving while the current exemption still stands. For example, consider gifting assets to an irrevocable trust. This will allow you asset protection regardless as to whether the gift tax exemption changes. You should consult your CPA and speak to your estate planning attorney before gifting assets, as you may want to maintain the ability to access these funds in case you should need them in the future.

There are many options to gift assets while still maintaining access and control. Some of the options include creating a grantor trust, creating a trust with loaning power, or setting up a spousal lifetime access trust. If you are likely to impacted by reductions in the exemption and are interested in reducing your heirs’ estate tax exposure, now is the time to review these options with your estate planning attorney to determine what the next best step might be. Planning now, in a way that will benefit you and your heirs regardless of how the political winds blow, could save your family greatly in the long run.