Estate Planning: Potential Estate Tax Changes In 2021

Here’s What You Need to Know

Estate planning has become a very hot topic lately, but most people think estate planning is for the uber wealthy. However, the  estate tax benefits may revert back to lower levels on January 1st, 2026, and would affect more people than ever imagined. In addition, the Biden administration is now proposing changes on death taxes.

The most notable change to the estate tax benefits is the loss of step-up in basis thereby causing capital gains due at death. This is a dramatic change and the number of people that will be affected makes planning even more essential and urgent to have done.

The awareness of the need to both review any existing plan and or establish a plan is changing quickly because of the Biden proposals lurking.  Changes of the current laws, which are very favorable for passing wealth from one generation to the next, are causing people to now focus on estate planning, and rightfully so.

Current Estate Tax in 2021 & Proposed Changes

In 2021, the threshold for federal estate taxes is $11.7 million, which is slightly up from the $11.58 million in 2020. For married couples, this threshold is doubled, meaning they can protect up to $23.4 million in 2021. Many states have much lower levels and cause sizable State inheritance taxes to be due even for smaller estates. 

Congress could extend the exemption or even boost it, however, President Joe Biden has called for the federal estate tax to revert back to its 2009 level of $3.5 million per person. His recently published tax plan calls for changes to income, gift generation skipping transfer and estate taxes. The change could help pay for fighting the pandemic and the infrastructure build out he’s promised along his campaign.

Why Is Estate Tax Planning Important in 2021?

Many of the long-time tested strategies for eliminating unnecessary taxes, litigation, and a breach of privacy is under threat. Some of these strategies address the basics such as transferring wealth now to avoid future growth within one’s estate, restructure asset ownership to receive a discount at death i.e., create minority interests in an entity, etc. The use of Irrevocable Trusts of various types with acronyms like; SLATS ILITs, QTIPs, QPERTs, GRATs, CRTs, etc. should be considered. What will shake out in future legislation is still confusing.

Of big concern in planning is the change of the step-up in basis” at an individual’s death. If this changes, the beneficiaries of assets would now owe capital gains tax from the growth of the prior generation’s assets. This would have a dramatic effect on most Americans who have accumulated wealth in real estate, equities, and any other capital gain type of assets. This would certainly make a dent in our government’s debt and deficit, but at a cost that is devastating.

The most overlooked area of estate planning is the preservation of family harmony and love. All too often the custom guidance that should be written into the trusts does not get incorporated. No two families are alike. There are different childrens needs, geography, and a diversity of assets which requires a well-thought-out plan to avoid sibling conflicts. One child may live near the family home and want to keep it while the other live far away and want to sell it. Family businesses with non-active children require special considerations as well.

Types of guidance like money management and financial discipline should be provided to the children. Parents may never know what type of child or situation they will be in? The trust can provide this guidance and reach out long past the grave to assure that the children and even grandchildren of a deceased will have their wishes kept.

Therefore, not only the tax implications should be the motivating factor.

Consider Turning to an Estate Planning Expert

As an insurance professional in the estate planning area, I have witnessed the planning process fail time and time again. A clients tendency to shortchange the necessary exchange of feelings and not just financial information is the result of the hourly billing approach in the legal profession.

To really know the family dynamic, lengthy conversations are needed to reveal how a plan should be developed. The first question is often what will a plan cost?” Attorneys rarely quote without a disclaimer of sort. Hence, procrastination!

The legal profession really does not spend much time on the death planning stage but more on the estate settlement stage of death. A lawyers compensation for planning versus the compensation for settling estates is dramatically different and therefore warrants dramatically different attention to detail from the profession. The same is true with CPAs. Basic wills and trusts, boilerplate documents and answering the request of their clients does not make a comprehensive plan.  Often, even when the documents are drafted, assets are not retitled and therefor pass by will. A will is an instrument of probate and therefore expensive. Wills are a public display of the assets passing through probate which is completely avoidable if the assets have been retitled in trusts.

Exemplar Estate Planning Experts

Typically, little advice is offered regarding various options and their pros and cons. Consider this, if an estate plan is done properly there should be little need for attorneys later and at the death of the client.

The value proposition at Exemplar, holistic guidance and no hourly bill, is especially important in this area of law. True estate planning attorneys are in demand right now. At Exemplar we are geared up for the changes ahead and what it will mean to you.

*We will keep the subject of estate planning updates in future articles.*



Steven White

Steven White

Managing Director, Insurance and Financial Services Exemplar Companies, PBC

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