We are all watching the developments of the coming November election, in an environment of great uncertainty. But one thing is clear. If the election results in the Democrats controlling the White House and both houses of Congress, it is likely that taxes of all kinds will be increased, particularly the overall tax burden on higher net worth individuals. As a result, it is important that wealthy taxpayers carefully and promptly assess their opportunity to take advantage of current tax benefits as those benefits may disappear, possibly effective as early as January 2021. This article focuses on federal estate and gift tax law provisions that may be affected by potential near term legislative change enacted in 2021 and describes certain planning techniques that might be implemented before year end.

 Current Law. Under 2017 federal tax legislation, the amount of the federal gift and estate tax exemption set in 2010 of $5,000,000, annually indexed for inflation, was doubled. The current amount of the exemption in 2020 is $11,580,000, annually adjusted for inflation. The gift and estate tax exemption is “unified,” meaning that lifetime gifting in excess of the annual gift tax exclusion amount reduces the amount of the estate tax exemption available at death to protect assets from the estate tax, and is in addition to the annual gift tax exclusion, which remains at $15,000 for each donee. Assets transferred during lifetime or at death in excess of the gift and estate tax exemption are subject to the current federal rate of gift and estate tax of 40%, which is lower than rates in the past. Regardless of the election outcome, this doubled exemption is scheduled under current tax law to “sunset”—that is, end—at the end of 2025 and return to its level in 2010—$5,000,000, adjusted for inflation in intervening years. The Internal Revenue Service (IRS) has issued regulations confirming that, if a taxpayer makes gifts of his or her exemption amount and thereafter the exemption amount is reduced, the taxpayer will not lose the tax benefit of using the higher amount.