With the Georgia Senate seats both going to Democrats, everyone is wondering what will now happen with estate, gift, and income taxes under the new administration. While there are no promises, given everything else on President Biden’s plate, including an urgent need to address COVID-19 vaccine distribution, those “in the know” are anticipating that major tax legislation is unlikely until third quarter.
The normal order of new legislation would entail the House Ways & Means Committee developing proposals, often as part of the budget process. It seems that given the impeachment trial, cabinet member approvals, and other items in need of more immediate attention, a mark-up of a bill may not happen until the summer. House approval would then need to be obtained before the legislation would go to the Senate.
In the meantime, it is important to take a look at your balance sheet and consider what your estate tax bill might look like today and what it could look like under a reversion scenario where the exemption drops back down to $5 million. If you are concerned about the amount of tax you might be paying, you should talk to your attorney or financial advisor about planning strategies to address use of the current $11.7 million exemption amount. While there is much discussion about a reduction of the exemption amount possibly being made retroactive to January 1, the IRS position on the scheduled reduction of the exemption in 2026 has been that there will be no tax due if you use exemption that later ceases to exist. Regardless, estate planners have several strategies available to insure against tax law changes in the unlikely event a change is retroactive to January 1, 2021.
We are continuing to recommend gifting for those clients where it is appropriate and are monitoring news from The Hill to stay apprised of any proposed legislation.