November is finally here - which means the relentless political ads, phone calls and social media posts are (thank goodness) coming to an end. As we spend the next few weeks discussing and determining the future of our country for the next four years, it’s important to prepare for potential changes to come - specifically changes regarding your estate taxes.
A Reminder About the Tax Cuts & Job Acts (TCJA) of 2017
President Trump enacted the Tax Cuts & Job Acts (TCJA) in 2017. Among other things, this act greatly increased the amount of money a person or couple could pass down to children or charity free from estate taxes. Prior to the TCJA, this number was $5,490,000 for individuals or $11,980,000 for couples in 2017. Any amount gifted or passed on above this amount would be taxed at a rate of 40 percent. Since the passing of the TCJA, the exemption limit has increased to $11,580,000 per person or $23,160,000 for couples.1
This legislation is meant to remain in effect until January 1, 2026 when it would, presumably, revert back to pre-TCJA exemptions levels (adjusted for inflation). Unless a new president, backed by Congress, reverses these orders.
If Biden Wins...
Biden is cited as saying he’d repeal TCJA benefits for high-income filers - which, in all likelihood, would include the TCJA’s higher tax-exempt limit for estate inheritances and gifts.2 If this becomes the case, this would affect those who may be planning on passing along an estate inheritance greater than $5.49 million (this number is based off of 2017 pre-TCJA numbers, but would be adjusted for inflation).
If Trump Wins…
If Trump is elected for a second term, it’s likely that the benefits outlined in the TCJA of 2017 would be upheld until their original expiration date in 2026.
What Should You Do to Prepare For a Potential Estate Tax Change?
If Biden wins the election, we could see tax changes - including estate and gift tax exemptions - go into effect as early as January 2021. This may also be dependent on the Senate and House majority, of which Biden may need to pass such tax legislative changes.
If you are worried this 50 percent drop in the tax exemption limit may affect your future gifting, there are a few things you can do now to alleviate the potential tax consequences. If possible, you could make gifts to your children or charities and use as much of the exemption as you can in 2020 before any tax changes were to go into effect.
In some cases, gifting or selling portions of your estate to certain types of trusts can help to preserve your estate as you prepare to pass it on to children or grandchildren.
Common trust types could include:
- Grantor Retained Annuity Trusts (GRATs)
- Intentionally Defective Grantor Trusts (IDGTs)
- Charitable Lead Annuity Trusts (CLATs)
- Qualified Personal Residence Trusts (QPRTs)
The type of trust you choose to utilize would depend heavily on your unique circumstances, as discussed with your estate planning attorney and/or financial advisor.
Few elections years in history have matched the volatility and uncertainty of 2020. Whether we’ll continue on the next four years with the same Commander in Chief or experience a change in leadership remains to be seen. But once the election results are in, don’t hesitate to reach out to your financial advisor to determine how your tax obligations may be affected, and what you can do now to prepare.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Juncture Wealth Strategies, LLC (“JWS”) is an SEC registered investment adviser located in Scottsdale, AZ, Lancaster, OH and Tempe, AZ. JWS and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which JWS maintains clients. JWS may only transact business in those states in which it is registered / notice filed, or qualifies for an exemption or exclusion from registration / notice filing requirements. The JWS website is limited to the dissemination of general information regarding its investment advisory services to United States residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of JWS website on the Internet should not be construed by any consumer and/or prospective client as JWS’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Furthermore, the information resulting from the use of tools or other information on this internet website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from JWS. Any subsequent, direct communication by JWS with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of JWS, please contact the United States Securities and Exchange Commission on their website at www.adviserinfo.sec.gov or and/or the state securities law administrators for those states in which JWS is registered. A copy of JWS’s current written disclosure statement discussing JWS business operations, services, and fees is available from JWS upon written request. JWS does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to JWS’s website or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE LINKED TO THIS WEBSITE.