Four Key Estate Planning Issues We're Following in 2021

Pullman & Comley, LLC

The past twelve months have demonstrated that a solid estate plan, which includes steps to protect your wealth, can help you feel better prepared and provide a sense of control during times of economic uncertainty.  As we begin to emerge from the pandemic, we provide you with answers to several questions on key issues that may have an impact on your estate plan.

 1.  Will there be a change to the federal estate and gift tax exemption in 2021?

It all depends on the priority the new administration places on attempting to roll back the exemption sooner than its scheduled sunset in 2025. It appears that more immediate attention in 2021 will be on other important matters like the pandemic, the economic recovery, and unemployment.  We will continue to monitor developments throughout the year, but we, along with many commentators, believe that any potential change may be deferred until 2022.

Currently, individuals have an $11.7 million federal exemption that may be used to make gifts during a lifetime or in one’s estate.  Some very high net worth individuals have already chosen to lock-in this high exemption amount with taxable gifts and others may choose to do so in 2021 or beyond based on what happens in Washington.

2. Will there be a change to the Connecticut estate tax exemption?

The Connecticut estate tax exemption increased to $7.1 million for deaths in 2021 and it’s scheduled to increase further over the next several years.  However, there's uncertainty whether the state government may find it necessary to raise tax revenue due to budget deficits caused by the pandemic, and whether the Connecticut estate tax may be targeted.  Or, will the state’s current historically high “rainy day” fund or any federal stimulus be sufficient to offset deficits and the need for more revenue?

A recent report from the Connecticut Office of Legislative Research stated that the legislature is likely to consider proposals to replace some of the revenue lost during the pandemic recession, which could include proposals to postpone or reverse tax policy changes to take effect in fiscal year 2021 and beyond (perhaps like future increases in the Connecticut estate tax exemption amount which is scheduled to equal the federal estate tax exception in 2023).

At this time, we do not foresee a change, but stay tuned.

3. Will the current historically low interest rates continue in 2021 and beyond?

There is no indication that interest rates will rise significantly in 2021, although some economists are predicting inflationary pressure.  This low interest environment will continue to present excellent estate planning opportunities for taxpayers, such as intra-family loans, gifts to grantor retained annuity trusts and the sale of business interests to intentionally defective grantor trusts.

4. Will there be a comprehensive change to federal income tax laws that will impact the treatment of capital gains?

There has been speculation that the current capital gains tax rate (generally 20%) may be increased by future tax legislation.  Furthermore, there has been some concern that the long-standing estate rules that provide for a “step-up” in tax basis of assets at death (which essentially wipes out any capital gain in appreciated assets when someone dies), may be targeted. From time to time over the last several decades, there have been proposals for such a change, but ultimately they never gained traction for many different reasons, including the practical difficulties in reporting the basis of assets acquired many years ago and ability of the IRS to adequately enforce such a development.  Will this time be different?

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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