The estate tax and lifetime gift tax exemption (which was temporarily doubled until 2025) is currently $11.7 million per person ($23.4 million for married couples). In addition, there is a $15,000 per donee gift tax exclusion ($30,000 if spouses agree). The current estate tax rate on amounts in excess of the exemption amounts is a flat 40 percent, and the tax basis in inherited assets is “stepped up” to the fair market value upon the death of the decedent. The Biden Administration is expected to seek an increase in the estate tax rate to 45 percent and to reduce the exemption amounts to their pre-
TCJA level ($5.3 million per person, $10.6 million for married couples), and some have proposed an even higher tax rate and a lower exemption amount. The tax basis of inherited assets is expected to carry over rather than step up. There is even a proposal in both the House and the Senate to tax capital gains when a gift is made and when a person dies. The portability of exemption amounts between spouses is expected to continue, but many of the planning techniques presently utilized by taxpayers may be curtailed or eliminated entirely.
‘Double Up’! Disclaimer Provisions to a Credit Shelter Trust
Your trust agreements already have a Credit Shelter Trust mechanism built in place if we have prepared them for you. Otherwise, please contact us at INFINITY ESTATE LAW GROUP for a no-fee trust review and I may advise you on whether this is in place within your existing estate plan.
With a properly prepared trust, you already have the right to "double" the estate tax (federal or state) exemption between U.S. citizen spouses (or for non-citizen spouse, with a QDOT in your trust) by having his/her plan specify that at the time of the first death, the surviving spouse has the choice to disclaim an outright all or part of their inheritance to fund into a credit shelter trust for their benefit for the remainder of his/her lifetime.
This trust can be funded with what may pass free from either the state or federal estate tax exemption that is otherwise wasted at the first death because there is an unlimited marital exclusion for any gifts made during lifetime between spouses or any inheritance between spouses. During the remainder of the surviving spouse’s life, he/she is a co-trustee to manage the assets in the trust and has access to income and principal for purposes of health, education or support. Upon the second death, despite how much growth and accumulation has been enjoyed, the balance of this trust will pass completely free from any estate tax.
Expected Additional Clarifications, Details and Changes
As the Administration and congressional committees continue to work on tax and budget proposals, clarifications and details regarding the various proposals will emerge. Some of the initial proposals may be abandoned and revised, or additional proposals may emerge. As soon as the new Administration issues its so-called Green Book, INFINITY ESTATE LAW GROUP will prepare additional analysis.