Estate Tax Planning in a Biden Presidency (part 2)

In my memory, donut holes are delicious!  But when you are in the “donut hole” it isn’t a good thing. Who knows why? You should be most concerned about the impact of a Biden Presidency on estate tax planning if you are in this “donut hole”:  your estate is below the existing exemption ($11.7 million for an individual; $23.4 million for a couple) and at or above the proposed lower exemption (an estate between $6 and $11 million per person or $12 to $22 million per couple).  Last week’s post (What Does a Biden Presidency Mean for Estate Taxes?) explained the structure of the estate tax, Biden’s proposal, and the prospects of it becoming law.  This week, we look at the impact of the proposal on those in the middle.

If you are in the donut hole, you should seriously consider reviewing your estate plan.  Although very complex in nature, the goal of most estate tax planning is to gift away assets at favorable values and exclude them from your estate later on.  You cannot maintain full control of your assets while gifting them, so estate tax planning comes with strings, regulations, and burdens.

The positives of estate tax planning:

  • Certainty of avoiding estate taxes on the gifted assets
  • Peace of mind

Disadvantages of estate tax planning:

  • Potential loss of control of assets
  • Expense of sophisticated estate tax planning
  • Administrative burdens of managing gifted assets in trusts

Here is the difficulty in deciding what to do when Biden’s proposal is just that – a proposal.  Do you incur the cost and burdens of tax-oriented gifting when it might be unnecessary if the law remains unchanged?  What if doing nothing cost you millions?  Sounding more interesting, isn’t it.

Here are my bottom-line recommendations:

  • If your total estate for an individual is well less than $6 million, or $12 million for a married couple, considering radical estate tax planning at this time is totally unwarranted.
  • If your estate is greater than $12 million for an individual or $24 million for a couple, you should have already undertaken serious estate tax planning, regardless of President Biden’s proposal.
  • If you are in the donut hole (between $6 and $12 million or $12 and $24 million), you should consider gifting opportunities that are already part of your general estate plan.  You should not consider gifting strategies that were not already contemplated.  For example,
    • If you have no desire to create a charitable foundation, do not do it now because there might be a tax act that impacts you.
    • If you are already desiring to turn over control of your businesses to the next generation, now might be a favorable time to complete such a gifting strategy

So, being in this donut hole is not quite like being fried in hot grease, but you might at least call your estate planners at Pyke & Associates, P.C.   We won’t burn you!

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.