Over the past few weeks, several senators formally proposed a bill that, if passed, would make changes to the current estate and gift tax system. These proposals seem to have some support among other Democratic Senators and Congressmen.

The current proposals seem to be gaining momentum. Given the unpredictable political climate and the possible changes that may be made even if a watered-down version of the proposed law passed, we recommend that you take this time to review and consider updating your estate plan.

Remember, however, that the provisions that ultimately pass may be very different from what is currently proposed.  At a minimum, the changes may very well include reductions in the estate exemption amounts and increases in the rates that do apply.

In general, some of the changes being discussed are:

1. Decreasing the amount that can pass tax-free upon death from the current $11,700,000 to $3,500,000 for each person.
2. Limiting your lifetime taxable gifts to a total of $1,000,000
3. Increasing the estate tax rate to 45% for estates from $3,500,000 to $10,000,000 and 50% over that amount
4. Limited the annual gift amount to $30,000 per donor rather than $15,000 per donee

In addition, some of the tools that we have used in the past will not be available in the future. This provision could apply as early as when the bill is signed into law.  And if Biden’s plan is addressed, additional changes could be made including the loss of the step-up in basis upon death.  This would be a significant problem for many tax plans, for many reasons.

Even in the absence of any change to the current laws, the exemptions that exist today will automatically be reduced in 2026 to the 2017 amount of approximately $5,000,000  (indexed for inflation for 2018-2025).  So utilizing the generous tax free gifting provisions today could offer a very prudent way to transfer a significant amount of wealth to future generations.

As Congress continues to discuss these changes, we need to be pro-actively reviewing estates over $3,500,000 per person. Particularly important is to know that your estate attorney may be extremely busy attempting to meet deadlines for many clients that these changes could affect.

Our recommendation:

• If you have an estate plan – contact your attorney or your MCM CPA and determine if it warrants a review and update at this time. Note that this will be based on the size of your estate and how your assets are currently titled.
• If your Will and/or Trusts are outdated and your estate is more than $3,500,000 per spouse, immediately contact your estate attorney or MCM CPA and schedule a thorough discussion and review.
• If you have never had an estate plan and your estate is over $3,500,000 per person, the same advice applies. For you, time if of the essence.

 

We’re here to help.
MCM has a team of CPAs that are experienced with estate planning and making recommendations about how to proceed. Feel free to contact your MCM CPA and they will direct you to our Estate and Gift Team.