2020 has been a year to remember for so many reasons: a global pandemic, the race to a vaccine, and an election with record-breaking voter turnout.

President-elect Joe Biden and his running mate Vice President-elect Kamala Harris campaigned on a platform of detailed proposals, including changes to certain areas of tax law. Here are some

You may have heard by now that the Gift and Estate Tax exemption amount was increased by the Tax Cuts and Jobs Act of 2017, which became effective on January 1, 2018. This article is to highlight some of the key estate planning issues under the new tax law.

In 2019, the Gift and Estate Tax exemption as adjusted for inflation is $11.4 million, and in 2020, the exemption amount will be increased to $11,580,000. Historically, this is the highest the exemption has ever been. The exemption will continue to increase incrementally due to a built-in inflation adjustment until January 1, 2026, when, absent an act of Congress, the exemption will be decreased to about $6 million. The value of a decedent’s estate in excess of the available exemption upon death will be subject to a 40% estate tax.

This dramatic increase (and future expected decrease) in exemption poses a range of estate planning issues which affect all clients, regardless of the amount of your wealth. There are also some opportunities for tax savings.
Continue Reading With New Tax Law, Your Estate Planning May Need Some Revisions

This is a question that has arisen in my practice numerous times this year since “Portability” became permanent when the American Taxpayer Relief Act (ATRA) was signed in January 2013. And I’m sorry, but–the answer is “Maybe”.

The Way It Was

The majority of my clients want the surviving spouse to continue to be able to use all of the couple’s assets after the first spouse dies. In the not so distant past, when the Estate Tax Exemption (Exemption) was $600,000 (increasing to $1 million over a period of years), and estate tax rates were up to  55%, this was a real problem.  If clients with $2 million in assets provided for all assets to pass outright to the survivor, then when the survivor died owning the whole $2 million, there could be $500,000 of estate taxes to pay.  As a result, the vast majority of my clients who are married couples have an estate plan that creates a “Bypass Trust” when the first spouse dies, to bypass estate taxes.  The Bypass Trust will hold the deceased spouse’s assets, and use the deceased spouse’s Exemption.  The survivor is the beneficiary of the Bypass Trust but the assets in the Bypass Trust are not taxed when the survivor dies.  This allows the survivor to use all the assets during his or her lifetime, and to use the Exemption of both spouses; this approach essentially doubles the amount that can pass free of Estate Tax.

There has always been a potential downside to the use of the Bypass Trust, and that is: while the assets in the Bypass Trust escape Estate Tax at the death of the survivor, they also do not receive a new ”stepped up”  income tax basis at that time.  Because the Estate Tax was taxed at up to 55% versus capital gains at 20% (plus California capital gain taxes around 9+%), it was almost always better to avoid the Estate Tax and forgo the “stepped up” basis at the death of the survivor.  With the current Estate Tax rate of 40%, and California capital gain tax rates bumped up to 13.3%, this is not such an easy choice now.


Continue Reading Now that there is “Portability” of the Estate Tax Unified Credit, Do I Need a Bypass Trust?