A new president brings plenty of new ideas, plans, and potential changes to existing laws that govern nearly every aspect of everyday life.
While many things are said during campaigns, it’s what they do after Inauguration Day that actually counts. One rule of thumb is that when a candidate tells you what he or she will do once they’re in the office, it’s important to listen and think about what they’re saying—and how that can impact you.
Part of the so-called “New Plan” might be to increase tax revenue from corporations, high-net income, and high-wealth taxpayers. This includes removing income tax reductions from the Tax Cuts and Jobs Act of 2017 (TCJA) for taxpayers with incomes above $400,000, as well as limit itemized deductions to 28%.
Once you understand what the new administration’s plans might mean for you, you can move forward accordingly.
Gift Tax Planning
We previously discussed the current gift tax that’s in place until 2025. That’s a current lifetime gift exemption of $11.58 million and $15,000 per-person-per-year limits. Those limits will be raised to keep abreast with inflation for the next five years, then returned to the pre-2018 level of $5.49 million per taxpayer. Multiple other provisions in the Tax Cuts and Jobs Act (TCJA) will also expire at the same time.
It is entirely possible that these higher gift tax limits could be lowered before 2025, although the TCJA specifically addresses the possibility of “clawback.”
Another possibility is that a new plan could decrease the gift tax exclusion to $1 million and the estate exemption to $3 million. This proposal was first presented in 2016 and has been included in new plans for families planning to pass assets to children, grandchildren, and other beneficiaries.
New plans might include raising estate taxes from 40% to 45%. Unrealized capital gains would also be subjected to being taxed, according to the Tax Policy Center.
New plans might anticipate eliminating the “step-up” basis that allows heirs to receive inherited assets valued at the time of the death. That means that an individual who inherits and then sells immediately will still be subjected to capital gains.
Additionally, the previous generation-skipping transfer tax parameters could revert to the ones in place in 2009 during the previous administration.
What To Do Now
Although when an election has been decided, no legislation has yet been proposed. Therefore, the details of the “New Administrations Plan” are simply discussion and analysis, but not yet passed.
For instance, we don’t yet know if the $400,000 threshold applies to only individuals or individuals as well as married couples. If it were higher for marrieds, it could at least partly offset the so-called “marriage penalty” that would result. It will only become clear once legislation is proposed, voted on by both houses of Congress, then passed.
Now is the time to review and examine your Illinois estate plan before any changes are made that could significantly alter the outcome of your estate plan. Make an appointment with your attorney to review your current plan and see if any updates are needed. While many people are taking a “wait and see” approach, waiting too long could be too late.
James C. Provenza, Chicago Estate Planning Attorney
Are you considering gifting money to your family members? If you’re concerned about the changes that are coming to estate planning in 2021, the time to start is now. Changes in tax laws can come at any time, and your current estate plan may not work the way you anticipated. Talk to an estate planning attorney who understands estate planning law and can advise on the coming changes. James C. Provenza is an Illinois estate planning attorney with more than 25 years of estate planning experience. Call our firm today at (847) 729-3939, or use our online contact form.