Act Now: Timing Considerations for Potential Gift and Estate Tax Legislative Reform under a Biden Administration

With the Presidential election results confirmed, the Biden Administration will take office on January 20, 2021, and this administration change will bring tax policies that are different from the current administration. So when will tax reform be enacted, and on what date will that tax reform be applied? At this point, the timing and extent of tax reform are still unknown. There are several factors at play, including the Georgia senate races’ outcomes and the Biden Administration’s agenda priorities.

That said, we still recommend acting now, particularly around gift and estate tax strategies and specifically if your current net worth is higher than the current lifetime gift tax exemption [$20mm+ if a joint estate] before any significant reform efforts are introduced in Congress. Why? Historically speaking, tax legislation could be applied as of the date of introduction, date of enactment, or retroactively. Based on discussions with experts in various fields, the following are possible:

• A tax reform bill could be introduced in early 2021 that changes the current lifetime gift tax exemption of $11.58mm per taxpayer down to $5.5mm per taxpayer (or even lower).  The bill might state that if it is passed and signed into law, the applicable date of the reduced exemption amount starts on the bill’s introduction date.  Therefore, the mere introduction of a tax reform law would limit your planning opportunities around utilizing the full $11.58mm per taxpayer.
• In a worst-case scenario, a bill reducing the lifetime gift tax exemption could have a retroactive date back to January 1, 2021.  If this happens, it’s possible that there would be a grace period in which gift tax transactions that already occurred between January 1, 2021, and the date of enactment could be undone without any tax ramifications.  Again, however, it would be too late to utilize the higher gift exemption amount if this happens.
• In a best-case scenario, a bill reducing the lifetime gift tax exemption has an applicable date of the date of enactment or a future date. Still, this scenario should not be relied upon for planning and implementation purposes.

Please keep in mind that there are gift and estate planning strategies to consider even if you do not expect to be impacted by a potential decrease in the current lifetime gift tax exemption and/or if you are not interested in completing significant wealth transfers now or in the near term.

Due to the uncertainty around possible tax reform, we highly recommend starting your gift and estate planning conversations now with your Topel Forman team and estate tax attorney, if you haven’t already done so. Please also note that interest rates remain historically low, and there are valuable gift and estate tax planning opportunities to take advantage of with these low rates.

We are here to help. If you have any questions, don’t hesitate to reach out to your Topel Forman advisor, call us at (312) 642-0006, or contact us.

© 2020