Do I Need to Make a Large Gift Now?

Many wealthy individuals are asking that question out of fear that the historically high estate/gift tax exemption of $11,580,000 ($23,160,000 for a married couple), indexed annually for inflation, could be significantly decreased prior to its scheduled “sun-setting” on December 31, 2025 to $5,490,000 (indexed for inflation) if the Democratic party sweeps Congress and the White House in November. There is no single correct answer or analysis as every individual and family situation is different. But here are some general observations: (i) a gift of an asset during lifetime forgoes the opportunity to get a “stepped up” tax basis for income tax purposes if the taxpayer owned the asset at death; (ii) BUT, currently, the estate tax rate (40%) is much higher than capital gain rates, and repeal (or significant limitation) of the “stepped up” basis rule itself is also part of Biden’s tax proposals; (iii) if the individual is single with a taxable estate in excess of $11,580,000 (or married with a combined taxable estate for both spouses in excess of $23,160,000), the individual needs to seriously consider strategic gift planning regardless of what happens to the estate/gift tax exemption – they already have a big tax problem; (iv) the “sweet spots” for more careful analysis are the single person with a taxable estate between $11,580,000 and $5,490,000 and married couples with a combined taxable estate between $23,160,000 and $10,980,000.

This is a complex planning paradigm and early consultation with tax advisors is a must. Our most alert and prudent wealthy clients have already reached out to start the discussion of what options are available to them in the worst case scenario of the exemptions being significantly decreased “ahead of schedule”.

Advice that never grows old – plan for the worst, hope for the best!

For more information, please contact Henry C.T. (“Tip”) Richmond, III in our Lexington office at 859-899-8712 or any other attorney in our Tax or Estate Planning & Trusts Practice Groups.