Navigating Without a Map – Pre-Election Planning

With the upcoming election at the forefront of many people’s minds, several people are asking what the future holds for estate and gift taxation and state income taxation.  Anyone who purports to tell us what changes in the law will actually occur is likely naïve, lying, or just fantasizing.  That said, we can plan for the current estate and gift tax environment and discuss possible changes to the laws.

As we have previously addressed in other posts, IRS-prescribed interest rates, known as the Applicable Federal Rates, are at nearly the lowest in history. For October 2020, mid-term loans (loans due between three and nine years from loan date) can be made with interest accruing at 0.38%.  There are several techniques to consider in consultation with your estate planner, including:

• Refinancing of existing intra-family / intra-entity debt
• New loans to generation-skipping trusts (GST)
• Sales to “defective” grantor trusts (look for discount opportunities to lower values)
• Sales from GST Non-Exempt trusts to GST Exempt trusts
• Sales from old trusts to Perpetual Trusts
• Grantor Retained Annuity Trusts (if gift tax exclusion has already been used)
• Charitable Lead Trusts (although, one may want to wait for market correction)

People may also wish to make gifts to utilize any remaining federal gift or generation-skipping tax exclusion through “spousal limited access trusts”.

If Joe Biden wins the election but the Senate does not flip to Democratic control, there is a diminished likelihood of significant changes to the estate and gift tax regime; however, there is still planning that should be done ahead of scheduled changes in the law.  The attached PowerPoint presentation discusses possible strategies if Joe Biden wins the presidential election and other steps taxpayers might take if the election brings a “blue wave” with Democrats winning control of the Senate.

The Trusts and Estates Group at Levenfeld Pearlstein is available to discuss pre-election estate planning issues with you. Learn more about our practice or contact us here.