Dear Clients and Friends:

There has been a reprieve from the impact of tax reform as a result of Senator Manchin’s “no” vote, but unfortunately it is likely short lived. The Senate is debating the Build Back Better tax and spending bill promoted by President Biden, with any changes necessitating that the Bill will be referred back to the House for a new vote. As proposed, the Bill does not contain any estate and gift tax increases, though they could be added by the Senate. There are some increases in tax rates on high income earners and trusts, which will have some impact on estate planning. Democrat members of Congress desire to push the Bill through, though it will need to wait until 2022. Then, the question will be the consequences of any new rules and whether they will be retroactive.

The vast majority of clients who confronted tax reform during 2020 and 2021 in light of possible reduction of their estate, gift, and generation skipping tax exemptions decided to carry-through with creation of trusts and completion of large gifts to lock-in use of their exemptions. Recognition that these exemptions are slated to be reduced in 2026 in any event, and that use of these exemptions now allows for growth to be sheltered over their lifetimes, was the main reason these clients chose to act now. The only negative consequence is typically related to avoiding the step-up and cost basis of assets owned at death, but even this negative can be mitigated or eliminated under some interpretations of present law. This so called “loophole” is one that was meant to be closed under some versions of tax reform related to grantor trusts that were introduced during the year.

This is likely our last alert for 2021 (we hope), and we wish you and your families a Merry Christmas and all the best for the New Year!

Joe Kempe

Scroll to Top