Tax planning for 2021 | McNees Wallace & Nurick LLC


It is highly likely that 2021 will see significant changes in our tax laws. The Biden administration and various Democratic lawmakers have proposed various changes to our corporate and personal tax system. It is difficult to predict which of these proposals will pass or in what form, especially with the Democratic Party’s low majorities in the House and Senate and the complexity of the tax legislation. However, it is likely that some changes will be made. The purpose of this article is to summarize possible changes to tax laws that impact estate planning clients and to recommend possible actions.

Here are some potential legislative changes:

  • An increase in the inheritance tax rate of 40% within a range of 45% to 77%.
  • A reduction in the amount of the inheritance tax exemption (currently $ 11.7 million per person) to $ 3.5 million to $ 5 million per person.
  • The reduction in the gift tax exemption amounts to as little as $ 1 million per person (in 2009, the gift tax exemption was lower than the tax exemption on estates, which is intended to discourage lifelong donations).
  • A limit on how long a trust can exist without being subject to a generation-shift transfer tax (currently there is no time limit, which is one of the important advantages of planning “Dynasty Trust”). For example, one proposal is to apply the tax every fifty years.
  • Removal of the “basic step up” for assets valued at death. Currently, most assets have a base tier until the date of death of fair market value at death. It is possible that the increase will not be completely eliminated and instead there will be a cap of $ 1 million on the base to be allocated and perhaps earnings less than $ 100,000 will be exempt.
  • In conjunction with the absence of an increase in the base, there would be a deemed sale of assets on death, thereby triggering a capital gains tax to the extent that the value of the assets exceeds the actual cost base or the amount allocated on death. This proposal is particularly important if the capital gains rate is increased and will have a strong impact on family business owners and anyone who owns real estate. The deemed sale rules may also apply to gifts.
  • Limitations on the use of irrevocable transferor trusts, including the time limit for the term of an annuity trust retained by the transferor (typically a FREE has a term of two years and there is a proposed minimum term of ten years ).

Given the uncertainty of tax laws, it is important to review your estate plan to ensure that it achieves your intention in a tax-efficient manner. Some planning options to consider depending on your situation:

  • Create a “Spousal Lifetime Access Trust,” which is an irrevocable trust that benefits a spouse for life. The spouse can act as a trustee. Funding this trust would use the amount of your donation tax exemption. The trust can be structured to benefit your children as well as your spouse.
  • Create an irrevocable trust that benefits children, grandchildren and other descendants.
  • Pure and simple gifts.
  • Funding 529 Plans.
  • Clients who are hosting large taxable events (like selling a business this year) may want to consider charitable planning techniques, such as a charitable remainder trust or a charitable master trust (these trusts give you a tax deduction). income tax, but also benefit your family). Other clients may want to defer large charitable donations until future years, when the charitable donation tax deduction may be more attractive due to the higher tax rates.

It is important to periodically review your estate plan, regardless of the legislative environment. However, in today’s environment, it is especially important to ensure that your plan maximizes the benefits of tax laws.


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