Summer Estate Planning Update

Adam J. Centner

Legislative Update

After months of back-and-forth predictions, President Biden’s recently-released budget appears to quash any expectation of imminent changes to current federal estate tax laws. Some commentators now speculate that the Biden administration has decided a reduced estate tax exemption is not worth the political fight, particularly with the exemption amount already scheduled to decrease to approximately $6 million per person in January 2026 and plenty of other issues to be hashed out in Washington. 

President Biden has, however, proposed eliminating the “step-up in basis,” a tax benefit on appreciated assets, and increasing the top capital gains tax rate to 39.6%, among other changes. Both are likely to face stiff opposition in Congress, but if we’ve learned anything from the first months of 2021, we know it is much too early to predict the final fate of any proposed legislation.

For now, we continue to monitor legislative proposals and educate our clients accordingly.

Low Interest Rates

Historically low interest rates continue to be a boon for a number of estate planning vehicles, including intra-family loans and grantor retained annuity trusts. The June 2021 short-term, mid-term, and long-term AFR is 0.13%, 1.02%, and 2.08%, respectively. Although mid-term and long-term rates have increased as the effects of the pandemic have waned, now remains a good time to consider lending strategies, particularly short-term and demand loans. 

The Section 7520 rate, used when calculating GRAT annuities, also remains low at 1.2% for June.

Flexibility

Given the uncertainty in the estate planning arena that we have experienced over the past year and will certainly experience in the coming months and years, flexibility in planning continues to reign supreme. Use of powers of appointment, trust protectors, disclaimers, tax elections, and broad discretionary standards remains an important part of all of our planning conversations and trust documents, and these tools will undoubtedly play a huge role in tax planning as we enter a phase of unprecedented generational wealth transfer over the coming years. Regardless of a client’s current net worth, planning for flexibility is a crucial part of a comprehensive estate plan.

I hope you, your family, and your clients have a very happy and healthy summer!  If you’d like to discuss these topics or other estate planning matters, or I can ever be a resource to you, please contact me at 513.579.6488 or acentner@kmklaw.com.