With the new administration, significant tax proposals are being considered. With a federal budget deficit at an all-time high of $3.1 trillion in 2020, the current administration has proposed major changes to the federal estate and gift tax structure. These changes include:

1. Reducing the Estate tax exemption from the current level of $11,700,000 to $3,500,000;

2. Reducing the lifetime Gift tax exemption to $1,000,000;

3. Increasing the current Estate tax rate from 40% to 45% for Estates valued from $3,500,000 to $10,000,000, up to 50% for Estates valued up $40,000,000, 55% for Estates valued up to $950,000,000 and 65% for those Estate valued above $950,000,000;

4. In addition, a proposal would limit a grantor’s annual gift exclusion to up to $30,000 in certain circumstances. A change from the current annual exclusion of $15,000 per donor/per donee structure; and

5. Significant changes to the tax structure of grantor retained annuity trusts as well as family owned non-business entities.

In addition to the foregoing proposals, further tax changes are up for consideration:

1. The top income tax rate back up to 39.6%;

2. Corporate tax rate, now 21%, up to 28%; and

3. Modification of capital gains and dividend tax rates from the current 20% to around 24%.

While none of the proposals are set in stone, they would, if enacted, likely not be effective until January 1, 2022. However, based upon the Internal Revenue Code, any proposals (specifically those related to Estate and Gift taxes) enacted prior to December 31, 2021, could be retroactive as of January 1, 2021.

If you have any questions regarding the proposed changes and your current Estate Planning needs, please contact us at your convenience.

On November, 22, 2019, the IRS released the final regulations regarding the potential “claw-back” of the increased exemption amount used before a client’s death. As provided under Treasury Regulations Section 20.2010-1(c), in the event an individual took advantage of the 2017 Tax Act’s increase exemption and died after the proposed sunset scheduled for January 1, 2026, the regulations provide that such use of the increased basic exemption will not result in the decedent being treated as having made adjusted taxable gifts on the decedent’s estate tax return. Please fee free to contact our office for more information regarding this issue as well as deceased spousal unused exclusion amount and potential generation-skipping tax effects.

With the SECURE Act 2019 being stalled in the Senate, the key issue appears to be the application of the proposed 10 year limitation to inherited IRA by non-spouses.; specifically, it appears that Republicans oppose the changes to the “stretch” provisions.

The House has recently passed the SECURE Act of 2019. While the Senate still has to vote on the proposed Act, the ramifications to retirement plans and “stretch-out” pay periods must be considered closely with respect to Estate Planning. Consider contacting your attorney and financial planner to determine the impact on your current retirement and Estate Planning needs.

As President Trump unveiled his proposed tax plan, some Republican and Democrats alike have questioned the extent, viability and costs of the tax cuts.  The linked article from the NY Times provides a concise explanation of what the proposal may mean for the everyday taxpayer.

https://www.nytimes.com/interactive/2017/09/27/us/politics/six-charts-to-explain-the-republican-tax-plan.html