What will this new administration bring? While we know some of President Biden’s plans, some will inevitably be unrolled across the next few months and years. One thing that might change, though, is the estate tax exclusion.

Defining the Estate Tax Exclusion

The estate tax exclusion outlines the amount of money you can leave to beneficiaries without having to pay estate tax. Currently, you can bequeath this amount either at death or while you are still living. After the amount is used, you can look forward to 40% federal tax on assets that exceed that amount.

What is that amount?

It has fluctuated significantly across the years. For instance, in 2001, it was $675,000. For 2021, the exclusion has grown to $11.7 million per person. That’s a huge difference in two decades.

The estate tax exclusion amount includes a permanent exclusion of $5 million, which has been adjusted for inflation, using 2011 as a base year. The exclusion doubles through 2025 as a result of a 2017 law. However, unless Congress votes to extend the doubled exclusion, it will revert back to $5 million, adjusted for inflation, in 2026.

Yes, it’s a bit confusing to ponder. Is your head spinning yet?

Congress’s Plans for the Exclusion

While the incoming Congress has a few years before they have to act on this matter, they could choose to do so sooner. There is certainly a precedence seeing as Congress has changed the estate tax numerous times across the past decades.

According to Biden’s campaign, they seem to have a desire to drop the estate tax exclusion to $3.5 million. To push this through, it will need to be approved first in the House, which has a narrow Democratic lead, edging out Republicans at 222 seats to 211. And if the estate tax exclusion reduction were to pass in the House, it would then move to the Senate for a vote. There, the party line cuts right through the middle at 50 each. That means, in a tied vote, Vice President-elect Harris would have the tie-breaking vote, and she’ll no doubt side with the Democrats.

Plan Now for the Future

Due to the state of the current economy, Congress may seek to generate revenue from a number of sources to reduce the deficit. And that could include reducing the estate tax exclusion.

Instead of taking a “wait and see” approach, your best option is to act now and take advantage of the current, unprecedented high exclusion.

Some ways that might play out include:

• A married person giving assets equivalent to the remaining exclusion to a trust for their spouse or children. Then, they could make their spouse the trustee of that trust to gain access to those assets.
• An unmarried person could give assets to a trust for their descendants.

Don’t wait to make changes to your estate. Make an appointment now to speak with an experienced estate planning attorney to see if you should take advantage of the estate tax exclusion—before it potentially disappears.

And remember, if the exemption drops you will need to do planning before the drop goes into effect.

Still Have Questions? Contact Estate Planning Expert Joel A. Harris

Located in Concord, Walnut Creek, and Antioch, the Law Offices of Joel A. Harris is more than prepared to provide you with legal counsel pertaining to the planning and execution of your estate, including any other legal concerns or questions you may have. For over 30 years Joel A Harris has been protecting the estates of families throughout California. If you would like some help navigating the ins and outs of protecting your estate, feel free to visit us online or call us by phone at (925) 757-4605.