Estate And Tax Planning Update October 1, 2020

Dear Friends and Clients:

With the November 3rd Election looming, there is increased discussion about the potential change in the federal estate tax exemption that was increased under the Tax Cut and Jobs Act of 2017.  Under the 2017 Act, the amount which an individual can gift during his or her lifetime or transfer at his or her death without incurring federal gift or estate tax doubled under the Act. For 2020, each individual has a federal estate tax exemption of $11,580,000 or $23,160,000 for a married couple. This historically large exemption is due to sunset on December 31, 2025 when it will revert to an approximate inflation-adjusted amount of $6,800,000, or $13,600,000 for a married couple.  However, a change in administration and Congress could accelerate this reduction or further reduce the exemption. If you have an Estate which is currently subject to federal estate tax or which might be subject to federal estate tax upon the sunsetting of the bill, or if it were decreased to $5 million per person (or $10 million per couple) or below, now may be a time to consider strategies that you can utilize to avail yourself of current Estate and Gift tax exemptions.

Clients often express concern that the actions they take may be undone under future law. The IRS has gone on record as saying that individuals who utilize today’s high exemption,  before the exemption reverts back to a lower level, are not at risk to what is referred to as a  “claw-back.”   Therefore, steps and actions taken now can have profound impact upon not only for current clients, but subsequent generations.

Some of these strategies include outright gifts, gifts to Irrevocable Trusts that may include a spouse as a beneficiary, forgiving outstanding debt established during earlier planning which often includes intra-family loans, pre-funding or making additional payments or transfers to Insurance Trusts to minimize the need for premium payments in the future or to reduce them, as well as tools that make gifted assets eligible for valuation discounts, such as limited partnerships or limited liability companies.

All planning strategies have positives and negatives and these strategies are not a one size fits all proposition.

We at Timoney Knox encourage you to revisit your personal financial situation and Estate Plan to determine whether availing yourself of some of these strategies and using the high exemption would be beneficial.  Please contact your attorney at Timoney Knox or, if you receive this and have not availed yourselves of the Trust and Estate Department, please call our main number, 215-646-6000, and our receptionist will properly direct you to a member of the Trust and Estate team.

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