On December 1, 2020, Lawrence Mandelker was quoted in Accounting Today on gifting plans for high-net-worth individuals in the wake of the 2020 election.
“It’s always a good idea to make gifts,” said Mandelker. “For those that have sufficient means to live on after they make the gift, it’s a good idea to get any appreciation out of their potential estate, and move tax-free dollars to their kids.” Among other advantages, based on the way taxes are calculated, you pay estate tax on the entire estate, but for gift taxes, you only pay tax on what's transferred, according to Mandelker.
Of course, the biggest motivation is the likely change in tax and exemption rates with the coming change in the executive branch. “We’re in a situation now where there is a need to raise revenue, and a Biden administration has indicated they will look to increase taxes to do so,” Mandelker said. “Traditionally, transfer taxes are a good source of raising revenue. They’re an available resource even if they’re not that huge.”
Naturally, the lifetime exemption, now at $11.5 million, will be a target. “Some of the proposals suggest $3.5 million per person,” Mandelker said. “Currently, a husband and wife can transfer $23 million free of federal estate taxes. If exemptions decrease, that number will go down. If it goes to $3.5 million, a husband and wife would be limited to $7 million between them, so that’s a swing of $16 million. At a 40 percent tax rate, that’s a significant amount.”
The $11.5 million exemption is set to sunset in January 2026. “Of course, we knew that the $11.5 million amount would not last forever,” he said. “We’ve been telling clients for years to consider making gifts. We didn’t know exactly where the exemption would fall, but we thought it would go to roughly half of what it is now.”
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