Combine the economic challenges of the past few months caused by the coronavirus pandemic with the 2020 presidential election, and it stands to reason that changes could be in store for the U.S. tax code.
A clear connection exists between economic realities, presidential politics, policy changes and estate planning. That makes it crucial – especially for high-net-worth individuals – to carefully examine their plans to maximize the benefits offered by the current environment.
Estate and gift tax exemptions
While no one has a crystal ball, one of the biggest estate planning changes could happen over exemptions for gift and estate taxes. As of this year, the transfer tax exemption stands at:
- $11.58 million for individuals
- $23.16 million for couples
No federal taxes are owed on amounts transferred below these thresholds, which are more than double what they were in 2016. Right now, the threshold is scheduled to increase every year through 2026. At that point, the amount is expected to return to $5.6 million.
Possible pandemic repercussions
Since March, millions of Americans have lost their jobs, and businesses have suffered heavy losses due to the coronavirus pandemic. The crisis triggered trillions of dollars in government stimulus spending that must be paid for at some point.
Federal, state and local governments have slashed budgets, and many economists predict taxes must be raised to pay for the stimulus and help governments survive. That means the transfer tax exemption could end well before it’s scheduled to sunset in 2026.
Align strategy with your goals
With so much uncertainty on the horizon, high-net-worth individuals are well-advised to review their plans with an experienced estate planning attorney. They can discuss actions that take advantage of current tax laws to reduce liabilities while managing assets in accordance with their long-term goals.