Does the Election Impact My Estate Plan?

Anyone reading this has been around long enough to know that elections have consequences. With regard to estate planning - and specifically taxes - the upcoming election has the potential to dramatically shift the estate tax landscape for many.

Yesterday on CNBC, they discussed initial details of Joe Biden’s estate tax plan, which would appear to raise the federal estate tax rate from 40% to 45% and drop the combined marital exemption from $23.2 million  to $7 million. 

Taxes are complicated - what does that mean?

Here are the broad strokes on how the federal estate tax works: when we die, there is a federal tax on the value of our estates above a certain limit. Currently, individuals can leave up to $11.58 million free of the federal estate tax (the exemption) - spouses can combine their individual exemptions for a total of $23.2 million that can be passed to heirs without paying any federal estate tax. Every dollar above that exemption currently gets assessed a 40% tax at the federal level.

By comparison, the reported Biden estate tax changes would increase the tax to 45% and lower that exemption from $23.2 million to $7 million.

 It’s thought those changes, whenever enacted, would be made retroactive to January 1, 2021.

But seriously, what does that mean?

Currently, a couple leaving their kids $20 million would pay no tax since that falls under the $23.2 million exemption.

Under the proposed tax plan, that same couple would pay $5.9 million on the same $20 million.

So what should I do?

Well, I’m not going to pretend that $14.1 million isn’t an incredible amount of money to leave to one’s children. I’m also not going to pretend that people wouldn’t generally like to keep as much of their money as possible and pass as much to their children as possible without having it taxed. 

Good planning situates people so that they are poised to react strategically no matter the path forward. Clearly, we don’t know who’s going to win the election, and we don’t know what laws will actually get passed either way. So, depending on the value of your estate and the type of assets you own, there may be tactics that can be utilized now to properly position yourself to made the right changes (if necessary) between election day and the 1st of the new year. 

If you think you may benefit from talking more specifically about your situation, or you know someone who might benefit, please don't hesitate to reach out.