Estate and Trust Dispute Center of Ohio

During the past few months, several bills have been introduced in Congress which, if passed, would result in significant changes to the current federal estate and gift tax system. Some of these bills appear to have support among many members of Congress.

While it is possible that none of the proposed laws will be enacted, given the unpredictable political climate, it seems best to consider estate planning strategies that you might want to employ or changes that you might want to make to your estate planning documents if one or more of the proposed bills passes this year.

One of the proposed changes would reduce the federal estate tax exemption amount from $11.7 million to $3.5 million, likely effective January 1, 2022. Another proposed change would reduce the federal gift tax exemption to $1 million. Finally, as it relates to estate and gift tax matters, there is a proposal to increase the federal estate tax rate from 40% to 45% and higher on taxable estates. In addition, the step-up in cost basis for income tax purposes for assets that pass at death could be limited, the duration of dynasty trusts could be shortened and valuation discounts could be limited.

As a result of some of the proposed changes, certain estate planning strategies that we have used in the past, such as GRATs, IDGTs, valuation discounts and dynasty trusts, either will not be available in the future or will not be available on favorable terms.

If your estate exceeds $3.5 million, or is expected to exceed $3.5 million at your death, it is important for you to consider whether you should take immediate planning steps or be prepared to take such steps on short notice if any of the proposed changes to the law are enacted, in order to avoid or minimize estate and/or income taxes. Some of these strategies include creating spousal limited access trusts, grantor retained annuity trusts, intentionally defective grantor trusts, insurance trusts and in some cases direct gifting. If your income tax-deferred accounts, such as IRAs, designate your trust as a beneficiary, recent changes to the law may also warrant making revisions to your trust.

If you would like to review your current estate plan, please let us know so that our office can coordinate an appointment. It is advisable to schedule an appointment as soon as possible so that we can be prepared to act either before a new law is enacted or before the end of the year. Given future tax law uncertainty, historically low interest rates and current high exemption amounts, as well as changes that may have occurred in your personal and financial situation since your estate planning documents were last updated, it is an opportune time to revisit your estate plan.