Currently, each person can transfer (either during lifetime or at death) assets valued up to $11,580,000 free from federal tax, which means that a married couple can transfer up to $23,160,000. This “exclusion amount” is adjusted annually for inflation and is scheduled to revert to $5,000,000 per person ($10,000,000 per married couple), adjusted annually for inflation, on January 1, 2026. The 40% federal gift or estate tax is applied against the value of any assets in excess of the exclusion amount that are transferred to beneficiaries other than a spouse or charities.
If the recent election results in a party-shift of Congress, it is possible that there may be a reduction of the exclusion amount or an increase in the federal gift and estate tax rate. There is also a question as to when such new tax laws would become effective, with the possibility that any new law might be retroactive to January 1, 2021. T
Accordingly, you may want to think about “locking in” your exclusion amount now by making gifts prior to the end of 2020. You should do this only if you have:
- not already used all of your exclusion amount;
- sufficient assets so that you can use most or all of your remaining exclusion amount without upsetting needed cash flow or risking your long-term financial security; and
- assets that would permit you to make gifts.
If you are among those needing to take swift action, consult with your estate planning team consisting of an attorney, a CPA and a financial advisor.