Alert

Estate Planning During an Election Year

August 27, 2020

A political change in November 2020 could lead to a reduction in the existing estate and gift tax exemption. Many strategies put in place before the election can provide flexibility for making immediate decisions once the election is over and before the end of year 2020.

If you delay estate planning until after the election, you may face obstacles. The estate planning process can take several months and involve many components such as development of goals and objectives, execution of legal documents, changing ownership of assets and asset appraisals. Implementation now can help prevent the stress of last minute decisions and increased costs. Let us take a look at how this may benefit you through an example situation:

Example of Estate Planning

Your business is appraised at $20 million after valuation discounts. You establish an irrevocable trust for the benefit of your spouse and future generations. The trust has special provisions that causes the trust to be disregarded for income tax purposes. You sell all, or a portion, of the business to the trust in exchange for an interest-bearing installment note. The sale is disregarded for income tax purposes; therefore, no gain/loss is realized. If, after the election, you believe the exemption amount will be reduced, resulting in higher estate taxes, you could forgive the note from the trust resulting in a gift to the trust and utilize your current higher exemption. If you believe the exemption will remain in place, you have effectively frozen part of your estate by holding a note receivable instead of an asset that continues to grow in value in your estate.

We strongly encourage individuals to examine and execute flexible estate planning strategies before the election. These strategies will provide individuals with immediate executable decisions that can be acted on prior to the end of 2020, if necessary, or at the filing of the 2020 gift tax return due on the extended due date of October 15, 2021. Please contact John Ure or Mike Kirkman or your trusted Cherry Bekaert professional to discuss potential available opportunities.