Estate Planning Tips for 2021

As we head into a new year and a change of administration in Washington, advisors should be discussing several estate planning considerations with their clients.

The pandemic-driven financial crisis has caused massive increases in government spending, adding to a historically high federal deficit. Under any circumstances that might be expected to lead to tax increases. But with Joe Biden as president, a Democratic majority in the House and possibly in the Senate as well, it seems inevitable. New legislation may eliminate many of the Trump tax reforms, including the revised lifetime gift exemption.

The Tax Cuts and Jobs Act of 2017 raised the lifetime exemption from $5 million/person to $11.58 million for the 2020 tax year, meaning that a married couple could gift more than $23 million without paying any gift or estate taxes on those bequests. If the amount were lowered back to the $5 million range, it will have a big impact on estate plans.

With that possibility in mind, some advisors, myself included, are working with older high-net-worth clients to maximize their ability to give assets away without penalty. That means sitting down with the client, going through their holdings, and deciding which discretionary assets, such as real estate or business assets, they can gift without disrupting their own lifestyle or retirement plans.

But aside from outright gifts, there are other ways that advisors can work with their clients to see that more of their wealth winds up in the hands of their heirs than with federal or state governments. An irrevocable trust or an intentionally defective grantor trust is one way to shelter discretionary assets that can be passed on to future generations.