We hope this message finds you and your family safe and healthy. What a year 2020 is turning out to be! We are writing to you to let you know of our concerns that, in light of the national debt, additional financial stimulus from the coronavirus, the elections and whatever other disasters are going to hit in 2020 – it seems to us to be inevitable that there will be some very big changes to the tax code in the next few years, particularly in the form of the estate and wealth taxes. Depending upon the outcome of the November election, we believe that these changes will come very quickly. Under one proposed plan, the estate tax exemption would be cut by more than half in 2021!
This message is not written to support either candidate. Your vote is a unique and precious privilege. The tax issues are just one part of an analysis that is necessary for you to consider in placing your vote. However, we would be remiss if we did not advise you of the potential changes and their effect on your estate plan. While the Republicans have not unveiled their estate tax plan, the Democrats’ tax proposals reduce your exclusions from paying gift or estate tax (currently $11.58 million ($23.16 if married) minus prior taxable gifts) to as low as $3.5 million. Your ability to gift may also be reduced to $1,000,000 total over your lifetime (some have even proposed to eliminate lifetime gifts entirely). Finally, the proposed tax plan eliminates the step-up in capital gains basis upon death, adding significant income taxes on top of estate taxes at death for some of our clients.
Our objective in this email is to make sure you are aware that time is of the essence, and if you want to consider anticipatory planning, you need to schedule a time for us to have a conference (via phone or Zoom) as soon as possible. Due to these concerns, many of our clients have already reached out, and we are already booking into the next few months. While some clients may prefer to wait until after the election to proceed, we would like to advise you it is possible that we will not have adequate time to handle all of the requests for meetings. In addition, certain planning will require banks and financial institutions to set up accounts for new trusts and to transfer assets, all of which takes time. Importantly, we would want to ensure the gifts are complete before year end.
On a separate note, we also want to advise you that 2020 is a great year to make charitable gifts to offset taxable income. The CARES Act allows individuals to make charitable gifts in 2020 of cash to public charities (i.e., not to foundations or donor advised funds) and deduct 100% against adjusted gross income. As of the date of this email, the 100% deduction against adjusted gross income will be reduced to 60% in 2021. So, if you are considering making large charitable contributions or if you have been taking advantage of the law that allows you to pay $100,000 of your retirement assets directly to charity each year and would like to pay more, now is a great opportunity to do so.
If you have any questions or concerns about your potential tax liability and would like to learn more about the planning opportunities, please contact our office to schedule a meeting as soon as possible.