Two Steps Forward, One Step Backward?


Q: Tom emailed last week and asked this question, “Dear Derek, in light of Tuesday’s election, I am concerned that a Democratic outcome could wreck my well-designed estate plan. Is that true?

A: Tom, that is tough to say without fully understanding your personal situation; however, even without any legislation, the current estate and gift tax exemption of $11,580,000 ($10 million indexed for inflation) is scheduled to decrease on January 1, 2026, to $5,000,000 (indexed for inflation). However, the exemption could decrease as soon as 2021 if made part of the Democratic tax reform.

The generation-skipping transfer (GST) tax is a separate tax that is levied when transfers are made to or for the benefit of someone two or more generations younger than the transferor, and such transfers are taxed at a rate of 40%. The current law provides for a separate GST tax exemption of $11,580,000, and such a GST tax exemption level historically mirrors that of the estate and gift tax exemption. Presidential candidate Joe Biden has suggested that the exemption for the estate and generation-skipping transfer (GST) tax could be made as low as $3,500,000 per individual, while the exemption amount for gifts could be as low as $1,000,000.

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