Otto von Bismarck (1815-1898), a conservative German statesman once famously said, “If you like laws and sausages, you should never watch either one being made.” Members of the United States Congress often quote him when discussing how the legislative process, though messy and sometimes unappetizing, is capable of producing wholesome results.
Reading about proposed tax legislation reminds me of that quote. At first, we expected certain strategies like intentionally defective grantor trust and discounted family partnership interests to be eliminated from our tax laws. Pitchforks and torches were held by those wanting to eliminate the step-up in tax cost basis.
Miraculously, the next week, we heard that the step-up will be retained. Next, we learned that Congress would instead impose a tax on the wealth of billionaires. Then not. Those earning more than $400,000 annually would be subject to increased marginal tax rates. Or would they?
Whatever new tax laws enacted would be retroactive to the first of this year. Then not. Then maybe? It’s getting pretty late in the year to imagine that a new law would be retroactive to January 1st.
One can never know what deals are struck in the cloak rooms of Congress to eventually fashion a bill that would reach the President’s desk. I’ve practiced estate planning and tax law for the better part of 32 years, so I’ve become accustomed to uncertainty. Yet this year seems extraordinary, even by the making of sausage standards.
What are we to do then? How should you plan? We can start by examining what is and what will be. Currently the federal gift and estate tax exemption is $11.7 million. Without the enactment of any further legislation, in other words, if Congress can’t present a bill to the President that he’s willing to sign, that exemption will fall to approximately $6.5 million on January 1, 2026. If you have an estate worth more than that, then now is a good time to plan.
Could a future Republican President coupled with Republican control of both chambers of Congress change that? Yes, that can happen. How likely that is to occur, and how likely the legislative and executive branch would agree on more “tax cuts for the rich” in today’s climate is a guess that anyone can make. Only the future will tell.
Another factor to consider is the growth of your estate. Is it likely to continue to grow? If so, how is now not a good opportunity to engage strategies that will transfer that growth out of your estate for federal tax purposes?
What about income taxes? Many estate plans fail to address the many income tax planning opportunities available to your beneficiaries. If you believe that we are likely to see higher marginal income tax rates into the future, then you may consider reviewing strategies to mitigate those taxes.
In short, we do today know enough to act. The future is always uncertain and will continue to be. Only those frozen by uncertainty stand to lose. Let’s make some sausage!
On making sausages – or in this case, estate plans – we all know that there are labor shortages everywhere, my firm included. If you know of someone who is interested in working for an estate planning law firm that has an exemplary 98-year track record in Southwest Florida, we have positions open for a paralegal, clerical worker and an attorney (who should have a tax and estate planning academic background and experience). Send a resume to Maria Reimer at firstname.lastname@example.org.
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