The 2020 Election and the Estate Planning “Perfect Storm”

Estate tax exemption levels are at their highest in history.  The current estate tax exemption equivalent is $11.58 million per person.  The exemption levels are automatically scheduled, under current law, to be cut in half on January 1, 2026.

There have been major legislative changes to the estate tax during the terms of each of the three Presidents elected in this century (Bush, Obama, and Trump).  Given the current national debt and federal budget deficit levels, which have been exacerbated by government stimulus efforts in light of COVID-19, many believe a major legislative change to the estate tax is coming depending on the outcome of the November election, and that such change would result in the estate tax becoming more costly to taxpayers and/or impacting more taxpayers than it does currently.

Drawing on information released by the Biden campaign and stated positions of other Democrat lawmakers, some estate planners have pointed to exemption levels potentially being reduced by at least 50%, and potentially by more, as early as 2021.  Furthermore, some commentators believe that any tax law changes in 2021 could be effective retroactively to as early as January 1, 2021.  If this comes to pass, estate planning transactions completed after December 31, 2020 could be much less effective than those completed by December 31, 2020.

Indeed, if we see a Biden win in early November, particularly if coupled with the Democrats taking control of the Senate and retaining control of the House, many estate planners are bracing for a “perfect storm” of demand on the part of clients to make large irrevocable trust transfers before year-end in an effort to (hopefully) be “grandfathered” into the current law.  Such a year-end could be quite similar to 2012, in which there was a credible fear of an estate tax exemption reduction in the following year.

Recognizing the benefits to such proactive planning even if President Trump were to be elected to a second term (once again, exemption levels are scheduled to be cut in half after 2025 under the law as it is currently written), clients have already begun planning to get ahead of this potential “perfect storm” of estate planning demand in November and December.  The process of transferring several million dollars to an irrevocable trust is typically not a fast one.  It requires thought and care.  If the “perfect storm” scenario happens, there is a realistic possibility that prospective clients who act late will be turned away from their estate planner of choice due to his or her prior client commitments or forced into less optimal planning structures than would be available if they had initiated contact sooner.

Please consider contacting your Graydon estate planning lawyer to evaluate whether taking advantage of certain estate planning opportunities prior to the end of 2020 would be prudent in your situation.