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Planning Amidst Uncertainty

I am writing as another year of uncertainty is underway. Events of the past two years undoubtedly will have an effect well into the future, specifically the pandemic and the economic downturn, and I expect you have many things on your mind other than your estate plan. However, action by Congress this year could lead to changes in the nation’s tax laws which, if they occur, may have a significant impact. Although we will know more as we get farther into 2022, there may be actions you should consider taking in the meantime. As an advisor, I suggest that you review your current estate plan as soon as possible, and consider any additional planning that may be beneficial to you and your family.

Potential Changes in the Tax Law

Significant changes in the tax law have been proposed in Congress and can be made effective at any time. There is some concern that new laws enacted early this year might be effective as of January 1, 2022 (making them retroactive). If new laws are effective later in the year, it will likely be important to take action before the effective date to protect your family’s wealth and preserve the integrity of your estate plan, so putting plans in place as soon as possible so that they can be implemented quickly is prudent. There also may be ways to address retroactive changes in the tax laws, if that should occur.

At this time, it is not possible to know or even predict precisely what changes may occur. However, listed below are some of the changes that have been proposed, and may be included in final legislation.

1. The tax law, as it stands today, provides that the current estate and gift tax exemptions, which are now over $12 million, will be cut in half beginning in 2026. However, many have long speculated that changes in the political structure in Washington, DC after the 2020 election may result in the reduction of the exemptions well before then. It seems this possibility is even more likely given the current need to generate revenue. This means that many more families may soon be subject to the federal estate tax.

2. For a number of years, the federal tax law has provided for a "step up" in the income tax basis of assets owned at death. This can be a valuable benefit to the families of those who die owning assets with very low basis, such as land that has undergone extensive development or stocks that have performed significantly well since the date of purchase, because it essentially eliminates the built-in gain at the time of death, allowing the family or other beneficiaries to later sell the asset without triggering a large amount of capital gains tax.

There have been many proposals to eliminate this step-up in basis at death, made by both Democrats and Republicans at various times, instead requiring those inheriting the property to take the same basis as the deceased owner, or alternatively, to pay tax on the built-in gain at the time of the owner's death. Although it may not be possible to address this issue through planning, we wanted you to be aware of the possibility, and will be happy to discuss how it might affect your family and your estate plan.

3. In addition, many estate planning arrangements that have the potential to shift growth in your assets out of your taxable estate may be eliminated or made less effective in the relatively near future. Proposals and suggestions from past Presidential administrations and Congressional terms could resurface, affecting estate planning techniques ranging from life insurance trusts to grantor retained annuity trusts (GRATs).

4. One proposal made in 2021 may have a significant impact on trusts created during lifetime. The change would cause property placed in irrevocable trusts that are “grantor trusts” under the income tax law to be subject to estate tax when the creator of the trust dies, which is currently not the case. While this proposal does not appear in the current proposed legislation that has been passed by the House of Representatives, it could resurface. If you have been considering placing property in trust, it may be critical to do so before the effective date of this tax law change.

What This May Mean for You

Many of our clients will wish to act soon to take advantage of the current high gift tax exemption before a possible decrease. This can be done through lifetime gifting, and there are many flexible gifting options our office can discuss with you in more detail. Although we do not know what changes to the tax law may occur in the coming months, in recent years the Treasury has indicated that it will not try to recapture or "claw back" exemption used through lifetime gifts if the exemption later decreases. That means those who make gifts in order to use the current high exemption amount may ultimately succeed in transferring more wealth to their beneficiaries than they would otherwise be able to transfer on death, if the exemption amount decreases. It is worth noting that we encourage clients who could benefit from making a gift of the higher gift tax exemption to do so in any event before the higher exemption is scheduled to disappear in 2026.

In addition, clients who might benefit from an estate planning strategy such as a grantor trust or GRAT should consider acting to implement that strategy now, while the opportunity exists, in the event that those strategies or some of their benefits are later eliminated. Whether any such strategy is appropriate for you and your family depends on your assets and your estate planning goals.

What You May Wish to Do

Given the current climate of uncertainty and change, we suggest you consider being proactive in protecting your wealth from potential adverse tax law changes. We look forward to speaking with you about what steps you can take now, including ways in which property you transfer out of your taxable estate may continue to benefit members of your family.

Most of all, we send our best to you and your family, and we look forward to connecting with you when you are ready to work toward your estate planning goals, whether that time is now or in the future.

Note: This letter constitutes attorney advertising. Any statement regarding past results affords no guarantee of future results. Every situation is different and must be evaluated on its own merits. The contents of this letter are for informational purposes only and are not intended to constitute legal advice or form an attorney-client relationship. For information and advice particular to your situation, please contact our office at and arrange a meeting with an attorney.


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