It’s Not Too Late to Protect Your Estate!

It’s Not Too Late to Protect Your Estate!

In October of 2020, Attorney Kevin A. Pollock wrote about pending tax changes that may be passed under the new president in a post entitled “Make a Gift Before 2021“. I just wish to advise you that it’s not too late to protect your estate.

Current Lifetime Federal Gift Tax Exemption

The federal gift tax exemption currently allows an individual in 2021 to avoid paying taxes on gifts up to $11.7 million over the course of a lifetime. Additionally, each person can make annual gifts of up to $15,000 to as many people as the donor wishes. These annual gifts generally are not considered “taxable gifts” and do not count against a person’s lifetime gift tax exemption.

Presently, the federal lifetime gift tax exemption matches the $11.7 million federal estate tax exemption. A married couple (who are US citizens) can pass along $23.4 million to their loved ones. Moreover, a deceased spouse can port any unused estate tax exemption to the surviving spouse.

This may be the last year these exemption amounts are available.

Current Concerns

Now that the 2021 Covid relief package looks as if it will pass, the Biden administration can start considering other legislative priorities. There are rumors that the current administration intends to cut the $11.7 million estate and gift tax exemption to either $5 million or $3.5 million. There are also rumors that they may cap the lifetime gift tax exemption of $1 million per taxpayer.

While these proposals are always subject to change, it is worthwhile to consider if you should make a gift. These tax plans, if passed, will likely not be effective until January 2022. While it is possible the change in the tax laws could be applied retroactively to 2021, it is unlikely. Nevertheless, a good estate planning attorney should consider drafting reversion provisions into any gift to mitigate against this possibility.

Please note that there are also a lot of rumors floating around that Biden has signed new tax laws into place. This is not true. Additionally, the Covid relief bill that is likely to be signed into law would not change any federal gift and estate tax exemptions nor does it change the capital gains tax rates.

Next Steps

Based on the current circumstances, there is still time to plan for a reduction in the lifetime federal gift tax exemption. This may include gifting and setting up trusts. To learn more about this evolving area of law and how to best protect your estate, please make an appointment to speak with one of our attorneys today.

Written by: Emily Hurni, intern at the Pollock Firm LLC. (Lightly edited by Kevin A. Pollock, Esq., LL.M.)