Delray Beach, Fla. — With Georgia’s US Senate election results not even certain, tax attorney Bill Stetson’s in-box started to swell. How might President-Elect Joe Biden in the White House and Democrats in control of the House and Senate affect gift tax and estate tax exemptions? And what’s a wealthy client to do?
“Clients are concerned and worried, they want clarity, and they want it right now,” says Stetson. The issue: with Democrats in control, gift and estate tax exemptions that swelled under the Trump Administration could be on the chopping block. “President-Elect Biden never said what he wanted the exemption to be, but he said he wanted to get rid of the Trump era tax cuts, which imply going back to Obama era exemption levels,” he says.
Stetson explains that right now an individual can give away $11.5 million before they pay any gift or estate taxes. Gifts to a spouse or charity are exempt. Some of the Democrats running for president wanted to set that tax-free rate at $3.5 million. Indexed for inflation, the Obama rate would be about $5.75 million.
“What does that mean for clients?” ponders Stetson. “If the reduction happens, they will still probably have a huge tax exemption for the rest of this year, and if they don’t use that estate tax exemption and gift tax exemption this year, it could be gone forever.”
While what some call an increase in the death tax is not certain, neither is the date it would take effect – potentially retroactively to January 1, 2021 or January 1, 2022. All the uncertainty is causing consternation, reports Stetson who is already creating spousal lifetime access trusts (SLATs) in preparation of changing tax exemptions.
“If you have the money and know the exemption is going to get cut in half in 2022, it makes a lot of sense to use that exemption now. It could result in literally saving millions of dollars in taxes,” says Stetson. “2021 could be the best Christmas ever as the wealthy hand out money before gift tax and estate tax exemptions are cut.”