Changes Coming to Estate Planning in 2021

When federal and state laws change, you should make any necessary changes to your estate plan. With the change in administrations in early 2021, there could be new legislation coming shortly regarding income taxes and estate taxes, and it is important to plan ahead for these possible changes. Schedule an appointment to discuss your plan and goals with an Orange County estate planning attorney.

Some changes that might be on the horizon include:

• Reductions of the gift and estate tax exemption, permitting up to $1,000,000 in lifetime tax-free gifts and $3,500,000 in tax-exempt estates
• Increases in the estate tax rates, which are already substantial
• Getting rid of the step-up in basis rules, which could result in a carryover basis that creates an income tax
• Including grantor trusts as part of the grantor’s estate and end the opportunity to use short-term grantor annuity trusts (GRATs)
• Limitations on valuation discounts for family members
• Limitations on the time duration of generation-skipping trusts (GSTs)

These are all proposals currently, but they might go into effect this year or next year. You do not want to wait until the laws change and be reactive, as this can be less effective or ineffective. Instead, consider making proactive changes in anticipation of upcoming estate and tax legislation.

Possible Actions

You should always discuss the specific actions you should take in your circumstances with an experienced estate planning lawyer. Some suggestions might include:

• Making all possible exclusion gifts – $15,000 per person or $30,000 total if two spouses gift to the same person. You can also contribute directly to the medical or educational costs of another person without it counting toward the gift limit.
• Gift high-value assets subject to discounts or depressed values. You might also use complex strategies, including formula gifts, lifetime qualified terminal interest property (QTIP) trust elections, disclaimers, or other tools as your attorney sees fit.
• Make use of 2021’s Applicable Federal Rates (AFRs) and issue very low-interest loans to your children.

The Ongoing Process of Estate Planning

It can be tempting to design your estate plan and forget it, but this can be detrimental to your estate and beneficiaries, especially if you have a higher-value estate. You should view estate planning as an ongoing process that needs attention throughout your life. Change might be necessary due to changing laws or changes in your personal life.

If you experienced any life events in 2020 – or expect them in 2021 – you should also discuss these with your attorney. You might make changes based on:

• Marriage or divorce
• Having a child
• Purchasing real property
• Starting a business
• Having beneficiaries pass away
• Changes in close relationships

Contact an Orange County Estate Planning Attorney for Assistance

At the Law Offices of Roshni T. Desai, we work with clients on an ongoing basis and stay apprised of all potential and actual changes in the law. We can help you take proactive opportunities to protect your estate and family. Contact us online or call 714.694.1200 to speak with an Orange County estate planning lawyer.