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President-Elect Biden has proposed significant changes to the tax code. These changes may require revisions to your Estate Plan prior to the end of the year. Join us for a webinar that will address how the proposed changes will affect your family and how you can be better prepared.
We hope this letter finds you and your family well in this season of uncertainty. From the pandemic to changes in the White House, 2020 has brought with it a roller coaster of speculation and emotions.
With the election of Joe Biden as our new President, the federal government has placed us in unchartered waters that offers us great opportunities as well as the requirement for us to reassess where we are anchored today.
Over the next two to three decades, the United States will see the largest generational wealth transfer in history from the boomer generation. Consequently, a large concern for many families is potential changes to the death tax.
Following President Biden’s inauguration, he is likely to seek a dramatic decrease to the estate tax exemption level. Furthermore, if the legislation passes, there has been much discussion that the law will be retroactive to January 1, 2021. Thus, there may be a very limited time period prior to the end of the year to act and take advantage of this narrow window of opportunity to decrease or eliminate your estate tax exposure.
As a reminder, when determining your total net worth for estate tax purposes, the following are included in the calculation: the present day value of family owned businesses, farmland, minerals, most life insurance death benefits, and retirement accounts—all of which are values determined by the IRS.
In the midst of the turbulence caused by a capricious economy, unemployment, and viruses, this is an opportune time to consider making financial gifts to your spouse and loved ones. In addition, President Biden has proposed an increase of the capital gains tax rate in 2021 from 20% to approximately 37%. Thus, it may be an opportune time to transfer or sell your business now to the next generation.
Tax law changes are not the only reason to update your estate plan. From a practical standpoint, if any of the following circumstances are present, it may be time to consider revising your estate and/or business plan:
- The opportunity to immediately pass a family business or liquid assets “tax free” directly to family members or trusts established for their benefit. Of course, this should be contemplated with the likely loss of the stepped-up basis that occurs when a gift is given in life rather than in death;
- The opportunity to create a new business entity or convert an existing one, with the assistance and advice of your accountant;
- If your previous wills or trusts listed specific federal exemption amounts different than the current levels; or
- The previous use of a marital bypass or credit shelter trust (also known as an A/B trust), specifically when the sole purpose of the trust was to utilize both the spouses federal estate tax exemption amount.
Just as laws continuously change, markets will always ebb and flow. Likewise, your life changes—sometimes gradually, but other times in a blink of an eye. Regardless of legal changes at the state or federal level, it continues to be important to review and update your estate and/or business plans on a regular basis or when life changes have occurred.
As the adage goes, nothing is certain but death and taxes. At Evans & Davis, we strive to always be there for you, your family, and your business when life changes. If you would like to schedule a consultation to discuss modifications or updates to your estate plan, please give us a call at (866) 708-2335 or contact us via e-mail at firstname.lastname@example.org.
Thank you for the trust you have placed with Evans & Davis over these many years. Ultimately, our goal will always be to serve you and your family for a lifetime.