UPDATED - Estate Planning Window of Opportunity

The estate/gift tax exemption amount for the year 2021 is $11,700,000. This amount is double the base exemption amount of $5,850,000 and is courtesy of the 2017 Tax Act. For a married couple, this means their combined transfer tax exemption amount is currently $23,400,000, less of course any taxable gifts that have previously been made.

This doubling of the transfer tax exemption amount is scheduled to expire on December 31, 2025.

However, legislation has been introduced in Congress that would return the estate/gift tax exemption amounts to 2009 levels, which would result in an estate tax exemption of $3,500,000 and a gift tax exemption of only $1,000,000. This same legislation would also increase the estate/gift tax rates.

Taking advantage of the currently enhanced estate/gift tax exemption before it is reduced could result in tax savings of over $3,500,000 for an individual and over $7,000,000 for a married couple. These tax savings could potentially be doubled if you also take advantage of your generation skipping tax exemption.

The proposed effective date for this reduction in the estate/gift tax exemption is January 1, 2022. While it is impossible to say when this proposal may become law and whether it will be as proposed or something different, it is almost certain that there will be a significant reduction in the estate/gift tax exemption amount. Because the proposed effective date for this change is January 1, 2022, there is a planning window open to take advantage of the current enhanced estate/gift tax exemption amount.

There are numerous details that would need to be carefully evaluated when determining what potential planning techniques would make sense to capture this additional estate/gift tax exemption before it goes away. One possible option is a planning technique known as a “spousal lifetime access trust” that can be used by a married could which would allow one spouse to give his or her exemption amount to the other spouse through such a trust but not lose the benefit of the gifted assets.

If potentially saving $3.5 million to $7 million of estate tax is of interest to you, then please contact either David G. Watkins or Daniel V. Hiatt, Jr. of our firm if you would like to discuss what planning techniques could be used to capture these tax savings.