Client Alert: Possible Changes to Estate Tax Laws, Pending 2020 Election

On November 3rd, we will vote in the next Presidential election. Depending on the outcome of this election, there is a possibility that the estate tax exemption will be reduced. We want to alert you to this potential change in case you have any questions or would like to update your estate plan. While there is much uncertainty in terms of the substance and timing of these changes, experts in the legal and tax fields agree that the following changes are possible, if not likely, under a new President:

  • Currently, the gift and estate tax exemption is $11.58 million per person. Recent proposals reduce the exemption to $3.5 million per person. This means that an estate that exceeds $3.5 million in value (including retirement accounts, life insurance death benefits, and all other assets) would be subject to the estate tax.
  • Currently, the top tax rate for estates subject to the estate tax is 40%. Recent proposals increase the top tax rate to 50-55%.
  • Currently, there is no capital gains tax at death. Recent discussions include the possibility of adding a capital gains tax at death.
  • Currently, when your spouse, children or other beneficiaries inherit your assets, they get a “stepped up” tax basis equal to the fair market value as of the date of death, which eliminates the capital gain that would have applied during your lifetime. Recent proposals would eliminate the stepped up tax basis, so that beneficiaries would be subject to capital gains tax on the sale of inherited assets.

Typically, there is some advanced notice of pending changes that allow us to plan before proposals become law. However, it has been suggested that these changes could be made retroactively, so that legislation passed under a new President could become effective as of January 1, 2021. This will depend, at least in part, on the makeup of Congress following the November election.

If you are interested in taking advantage of the current, greater estate tax exemption, or have questions about how these possible changes could affect your estate plan, we recommend contacting your tax and/or legal advisors by mid-November.

Thanks for your continued confidence in McCarty Law’s estate planning services.

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Melissa R. DeVantier

Estate Planning and Business & Corporate Law Attorney at McCarty Law LLP
Melissa assists individuals and families with their estate and business planning needs. She also advises business owners and stakeholders on a range of topics, including LLC formation, mergers, real estate, contracts, and succession planning.