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Estate Planning for the 2020 Election

Estate Planning for the 2020 Election

By: Barry E. Haimo, Esq.

March 12, 2020

There are so many big stories in politics right now that it’s tempting to shut down your computer, turn off your phone, and ignore everything that’s happening. Headlines about impeachment, debates, and the upcoming tax season can be overwhelming and may be driving a total disconnection. 

Unfortunately, it’s more important than ever to pay attention and take action. A change in administrations could change how much you have to pay in taxes in the upcoming years. Failing to arrange your estate accordingly could cost you a lot of money. Plan now to protect your assets in the long run.

Proposed Plans from Democratic Candidates

At this point, we don’t even know who is going to run as the Democratic candidate for president. (And, of course, the future of the current president’s position is also up in the air.) No one can guarantee what policies will be put in place in 2020 and beyond if a Democrat takes the office. But based on the promises of the current candidates, we can predict that taxes on moderately wealthy estates may increase. 

Bernie Sanders wants to reduce the estate tax exemption from $11.4 million down to $3.5 million, the level it was at in 2009. For estates valued at over $1 billion, Sanders wants to dramatically increase the estate tax rate maximum to 77%. (You read that right. 77%.) He also wants to drop the gift tax exemption to $1 million. 

Elizabeth Warren (who recently withdrew her campaign) has similar plans. She wants to increase the estate tax and lower the exemption back to 2009 levels. The estate tax would begin at 55% and eventually reach 75%. 

Sanders, Warren, and Biden all want to eliminate stepped-up basis. That will adversely affect ordinary people’s families with respect to their beneficiaries’ income taxes.This would adversely affect most families.

What Does That Mean For You? 

If your estate is valued at less than $1 million, the election won’t have a huge impact come tax season. The plan proposed by the Democrats will largely impact the country’s 14,000 wealthiest families. If you’re in that group, it might be time to rearrange your estate and place your assets in different types of trusts. (SLATs and DAPTs are common choices.)

The more time you have to plan, the more flaws you might see in a potential strategy. Protecting your assets by establishing or gifting trusts could help to reduce taxes, but you might run into problems later. Too much protection could prevent you from accessing those assets if you need emergency cash flow. 

Naming certain family members as beneficiaries or choosing a more accessible trust may be the best option for your estate. 

What If Republicans Stay in Power?

At this point, little has been even speculated about in regards to further changes. Considering the fact that the Republicans just implemented one of the most sweeping tax reform plans in a generation a few short years ago, the most likely scenario is that things will stay largely the same.

If there are “changes,” they may be in the form of extensions to the policies already in place that are set to potentially expire in a few years. For example, the current estate and gift tax exemption of $11.4 million is set to revert to $5 million in 2026. However, if Republicans retain power, they could pass legislation to push that deadline out or even make the change permanent.

The Best Plan Will Depend on Your Estate

There is no one-size-fits-all strategy to solve all of your estate planning problems – regardless of whether the Republicans stay in power or a Democrat wins the election. One reason why it’s important to plan now is that you will need time to discover the best strategies for your estate. Don’t wait until November 2020 to consider making a change to your estate plan. 

Want to learn more about how the 2020 election could impact your estate planning strategy? Get in touch with an estate planning attorney today. 

Author:

Barry E. Haimo, Esq.

Haimo Law

Strategic Planning With Purpose®

Email: barry@haimolaw.com

LinkedIn: http://www.linkedin.com/in/bhaimo

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