Important Issues to Consider About Federal Estate Tax in 2021

As we enter into 2021, the country remains in a state of flux. Following the United States Presidential election in November 2020, the beginning of January also saw the Georgia run-off which involved two seats in the United States. While the Republican Party had 50 seats in the Senate before the run-off and Democrats now hold 48 seats, this number after the election changed to 50 seats for the Republican party and 50 seats for the Democrats as well as a tie-breaking vote by Vice President-Elect Kamala Harris as the president of the Senate in favor of the Democrat party. This change in political administrations in the country will almost certainly result in some substantial changes not just the federal estate tax but also other critical estate planning issues.


How the Change in Political Administrations Will Impact Estate Tax Planning


Firstly, certain provisions are already slated to disappear from the law. Other provisions are attainable as part of the give and take of the legislative process, while a third group of legislation is unlikely to be introduced out of concern of alienating voters in the 2022 elections. Some of the provisions likely include:


  • Democrats will likely reduce the federal estate and gift tax exemption amounts to the level at which these exemptions would have been before the 2017 Tax Cuts and Jobs Act. Consequently, these tax rates will likely accelerate substantially over the next few years.
  • The “portability” rule which permits a deceased spouse’s unused exemptions amount to carry over to the surviving spouse will remain intact. The reduction of the exemption, however, will likely not be applied in such a manner to retroactively deny future estates the full benefit of the higher exemption amount that would have existed at the time of the deceased individual’s taxable gifts.
  • The highest tax rate that applies to long-term capital gains as well as to qualified dividends will likely increase. 


What Changes in Estate Planning Are Unlikely


Despite the substantial change that is about to occur in both the executive and legislative branches of the United States, there are some Fortunately, some estate planning taxes and regulations that are not likely to be eliminated include:


  • The basis adjustment for assets acquired or passed from deceased individuals at the time of death will likely not be impacted.
  • The basis-step up rule which treats death as a recognition event of income taxes is unlikely to be changed. This rule is based on the rationale that a deceased person’s death is the equivalent of a sale of the deceased’s assets to beneficiaries at fair market value without income tax consequences. 


Speak with a Knowledgeable Estate Planning Attorney


If you have questions or concerns about any aspect of the estate planning process, one of the best things that you can do is speak with an experienced attorney. Contact Ettinger Law Firm today to schedule a free case evaluation and so that one of our attorneys can begin to help you create an estate plan that is capable of fully achieving each of your goals.

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