The 2020 election has been fraught with uncertainty and anxiety for most voters. As the dust settles and a clear winner emerges, what does it mean for high and ultra-high net worth families and their estate plans?

Although Congress remains divided with Democrats in control of the House and Republicans in control of the Senate, a shift in power in the White House will likely result in proposals to reduce the current $11.58M estate, gift and generation-skipping transfer (GST) tax exemptions; increase income tax rates; eliminate the step-up in basis at death; and limit the use of grantor retained annuity trusts and valuation discounts for intrafamily transfers of closely held businesses. The initial focus of the new regime will be on controlling the COVID pandemic and restoring a semblance of economic stability so it’s unlikely that the proposals discussed above will take effect in 2021, however, the potential changes could be retroactively effective as of January 1,2021.

With Republicans still in control of the Senate, the future of the estate and gift tax laws becomes even more uncertain. Although the goals of the new White House regime may remain the same, any significant reform of the estate and gift tax rules will require a bipartisan collaboration. Given Republican’s aversion to the estate tax, it’s probable that we won’t see any major changes to the estate and gift tax system in the next two years. Nevertheless, taxpayers who are in the process of making gifts this calendar year should not abandon their plans, for a number of reasons:

  • Exemptions are scheduled to decrease – Even if exemptions do not decrease under the Biden administration, the exemptions are still scheduled to decrease in 2026 under current law. Thus, clients will find themselves in a “use it or lose it” atmosphere. Additionally, if the Biden administration prevails in changing the estate and gift tax rules (perhaps in 2023, depending on the 2022 midterm elections), the changes may be made retroactive. Clients that abandon their current gifting plans with the intention of restarting in the future may find themselves unprepared and unable to implement a timely strategy.
  • Gifts are tax efficient – Gifts offer a tax efficient way to decrease one’s eventual transfer tax liability. Not only do gifts prevent future appreciation from being subject to an eventual estate tax; the way in which gift taxes are calculated results in a lower tax liability than if those assets were instead subject to estate taxes. Moreover, many states that have an estate tax, like New York, Maryland and the District of Columbia, do not impose a separate gift tax, allowing gifted assets to avoid state transfer taxes. As a result of the above, the sooner a gift is made, the more valuable the tax advantage. When making a gift, it is important to consult with your legal and tax advisors to understand the appropriate assets to gift and the recommended strategies that best fit your particular profile (regarding control and needs for current income and/or future liquidity).
  • Review title to your assets – For married couples, assets may be titled primarily in one spouse’s name, or titled in both spouses’ names as joint tenants with right of survivorship. For efficient use of each person’s gift tax exemption, in non-community property states, title to assets should be reviewed for purposes of giving maximum flexibility for each spouse to use his or her separate exemption during life. While there is “portability” of the unused federal exemption between spouses at death, it doesn’t apply to state exemptions and generation-skipping tax exemptions, and reliance on portability can lead to higher overall estate taxes under certain circumstances.
  • Estate planning strategies may be at risk – depending on a client’s unique circumstances, the nature of their assets, and their estate planning goals, different estate planning strategies will be appropriate for different clients. For instance, clients concerned about possible loss of cash flow may be able to preserve some benefit from gifted assets through a grantor retained annuity trust (GRAT) or an installment sale to discounted assets to a grantor trust. the Biden administration may seek to reduce the tax effectiveness of some of these strategies by changing the applicable laws or imposing additional restrictions.

Given the benefits of gifting and the uncertainty of the evolving political atmosphere, individuals in the process of gifting this year should continue with their gifting plans. Furthermore, for those who have been contemplating gifts but have not yet begun to act, it is not too late.


BKA Financial, LLC.

244 W. Water St., Suite 200
Elmira, NY 14901


BKA Financial, LLC.

Phone: (607) 732-3050
Fax: (607) 732-3904


BKA Financial, LLC.