Estate Tax Planning in a Biden Presidency (part 3)
As we have been discussing (see links to part 1 and part 2), those in the “donut hole” (an estate between $6 and $11 million per person or $12 to $22 million per couple), might consider estate tax planning. An obvious question is, can you take advantage of the difference between the current exemption and any decrease under President Biden’s proposal by gifting away the difference? The short answer is “no.” You can take advantage today of the higher estate tax exemption amount by gifting away all of that amount, but if you are in the “donut hole” you don’t have that much to gift. Unfortunately, you cannot gift the difference between the existing and proposed exemption amounts. Two examples explain why.
Example 1: Married couple has a community estate worth $40 million and a single asset valued at $25 million. They can gift that asset in some form and claim the full $23.4 million exemption in 2021 and that gift will never be subject to estate taxation. They have used their exemption fully and will have none in the future. Their future estate will be fully taxed at the existing rate unless the estate tax exemption has increased.
Example 2: An individual has a $9 million total estate and a single asset worth $6 million. The $6 million asset can be fully gifted, the full exemption claimed, but if the tax act changes, the unused exemption ($5.7 million) evaporates and cannot be claimed. Using part of the $11.7 million exemption now does not preserve the remaining exemption for your future estate. The exemption at the time of death applies, and if it has been reduced to $6 million, this individual has also totally used their exemption amount.
As discussed last week, those in the donut hole may consider estate tax planning, but not all will want or should undertake such planning. As with all of our work, our recommendations our based on your actual situation and does not apply to everyone.
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.
