Should you consider changing your estate plan in 2020?

/ Freidel & Associates, LLC/

Regardless of your political views, 2020 is expected to be a very busy year for tax and estate planning. This is fueled—at least in part—by the nation’s 2020 presidential election. And, although the general election is not until November, it may be crucial for you to meet with your tax and estate planning professionals earlier rather than later this year.

Currently the lifetime exemption is $11.58 million, which permits this amount in aggregate taxable gifts or bequests over an individual’s lifetime or upon death without incurring federal estate tax. However this limit is set to sunset in 2026—back to the 2017 limit of $5 million, adjusted for inflation. Don’t count on this landscape continuing unchanged, particularly depending on how the November elections turn out.

In the Democratic presidential primary, there have been various proposals to cut the gift tax exemption substantially. Most prominent is Bernie Sanders’ “For the 99.8% Act,” which would reduce the estate tax exemption to $3.5 million and the aggregate gift tax limit to $1 million. Other proposals have been more moderate, and yet some others have been even more extreme.

As the calendar moves closer to November, you can expect that your tax and estate planning professionals will become busier and busier helping those that want to make contingency plans now in case a political transition in power takes place early next year. We saw this in late 2012 and in late 2008, so we know that it is to be expected again this year.

The sooner that you begin updating your tax and estate plan, the better off that you will be. If you wait until November when the election results are already in, there is a good chance that your tax and estate planning professionals will be unable to guarantee that they will be able to prepare any necessary documents before the end of the year.

Here are the simple facts:

  • The current lifetime gift tax limit is $11.58 million and is set to sunset to 2017 levels in 2026.

  • Leading Democratic presidential candidates are pushing to reduce the estate and gift tax exemptions substantially.

  • There are few limitations on the ability of Congress to make the tax code changes effective retroactively.

  • We saw a burst of estate planning in late 2008 and late 2012, which only helps reinforce that it is likely to occur this year.

  • While there can be no guarantees, it is likely that estate plans created in 2020 would be grandfathered into legislation that could pass in 2021.

  • Watch out for state estate tax - a number of states around the country still have estate tax (sometimes with a lower exemption than the federal limit), inheritance taxes, or gift taxes.

  • We work with estate planning attorneys around the country to help put our clients’ plans in action.