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

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cartoon hand passing gift box to another outreached handUnder 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.

About our authors

Mary O’Connor

Mary O’Connor

Mary O’Connor, ASA, CFE, has worked exclusively in the field of valuation and financial forensics over her career. She specializes in business valuation and the appraisal of tangible and intangible assets for litigation and financial statement reporting with special focus in intangible assets in property tax appeal, securities, and transaction matters. She also possesses extensive experience with fairness and solvency opinions.

Ray Lampner

Ray Lampner

Ray Lampner, CPA, ABV, CVA, CFF, CGMA, CEPA, has more than 20 years of experience in consulting, taxation and advisory services. He specializes in valuation, exit, succession, tax and legacy/estate planning. He offers expertise in consulting, strategy and implementation with mergers and acquisitions, bank financing, growing businesses and exit planning for privately-held companies.

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. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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