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The Change in Administration Makes Estate and Gift Planning a Top Priority

Sikich

Jan 28 2021

2 min read

Under the Tax Cuts and Jobs Act of 2017, the federal lifetime gift tax exclusion was increased from $5.45 million to $11.7 million for a single individual and from $10.9 million to $23.4 million for a married couple filing jointly. This meant that business owners could pass this amount of money to children, grandchildren or another chosen beneficiary with absolutely no federal gift, estate and generation skipping taxes. This number was to revert to the original, lower amount when its sunset period of January 1, 2026 arrived. However, President Joe Biden’s proposed tax law changes would decrease the current gifting amount much sooner. The impact of COVID-19 has also depressed business valuations that may allow you to transfer more of the company while using less of your exclusion. Therefore, if you’re planning to gift your children or another beneficiary with your endowment tax-free, now is the best (maybe only) time to do so.

SUCCESSION PLANNING

Gifting your lifetime exclusion to your beneficiary is an important step in the business succession planning process, as well as before selling a company. If you’re planning to pass your family business onto your children or preparing to sell your company, taking advantage of the lifetime gift tax exclusion increases the value of your business at a lower cost to you before a transaction. You will need to make sure there is an appropriate amount of time between the gift and a sale of stock to optimize the tax benefit, so planning is important.

STEP-UP IN BASIS

Biden has also proposed to repeal the step-up in basis in an individual’s estate, and instead establish that a cost basis be applied for beneficiaries of the estate. The step-up basis currently requires the tax basis of most estates held at death to be reinstated to the fair market value at the benefactor’s death.

ADDITIONAL CONSIDERATIONS

While this change would affect taxes at a federal level, it is important to note that some states have their own estate tax requirements, and some have exclusion levels much lower than the federal.

Sikich’s team of tax and valuation services experts can support you in every aspect of your transaction – from determining the value of it to taking advantage of the federal estate lifetime exemption while it remains this high. Please contact our team to start talking about your situation.

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This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author

Sikich

Sikich is a global company specializing in technology-enabled professional services. With more than 1,900 employees, Sikich draws on a diverse portfolio of technology solutions to deliver transformative digital strategies and is comprised of one of the largest CPA firms in the United States. From corporations and not-for-profits to state and local governments and federal agencies, Sikich clients utilize a broad spectrum of services* and products to help them improve performance and achieve long-term, strategic goals. *Securities offered through Sikich Corporate Finance LLC, member FINRA/SIPC. Investment advisory services offered through Sikich Financial, an SEC Registered Investment Advisor. 