“If professionals tell you Congress will raise the estate tax or lower the exclusion in 2021, they are scaring you to get you into lawyers’ offices now to spend money.”

Bruce Givner provides members with his thoughts on the prospects for changes to the federal estate tax in 2021. Bruce is  of counsel with KFB Rice, LLP in Los Angeles. Bruce has been practicing tax law for over four decades concentrating on income tax planning, estate tax planning, sophisticated retirement plans, asset protection planning, charitable planning, capital gain planning, tax litigation, and the representation of high net worth and high-income families, as well as individuals and their closely held corporations.

Here is his commentary:

EXECUTIVE SUMMARY:

If professionals tell you Congress will raise the estate tax or lower the exclusion in 2021, they are scaring you to get you into lawyers’ offices now to spend money.

COMMENT:

Predictions Are Tricky

Predictions are always tricky.  For proof, look at how well the pollsters did in the 2016 and 2020 presidential races.  Having said that, here is my prediction.

Despite Georgia, No Changes

Even with the Democrats winning both Senate races in Georgia, there will be no increase in the estate tax (from 40% to, for example, 55%) or decrease in the exclusion (from $11,700,000 to, for example, $3,500,000) in 2021.^[i]  There are 8 Senators who are Democrats who are  the reasons the estate tax will not increase. 

Three At-Risk Democrat Senators Up For Re-Election In 2022

Three Democrat Senators up for re-election in 2022 in Purple states won their last race by less than 6%.  If they vote for an estate tax increase, they will likely lose their 2022 races:

                  Senator’s Name          State                  Last           Who Won?

                                                                                 Winning    Trump or

                                                                                 Margin       Biden

                  Maggie Hassan            New Hampshire         0.1%          Biden by 7.2%

                  Catherine Masto          Nevada               2.4%          Biden by 2.4%

                  Michael Bennet            Colorado             5.7%          Biden by 13%

Three At-Risk Democrat Senators Up For Re-Election In 2024

Three Democrat senators from Red or Purple states, up for re-election in 2024, would not dare vote for an estate tax increase or they would alienate the voters in their states:

                  Senator’s Name          State                  Last           Who Won:

                                                                                 Winning    Trump Or

                                                                                 Margin       Biden

                  Joe Manchin^[ii]               West Virginia         3.3%          Trump by 39%!!

                  Jon Tester                   Montana             3.6%          Trump by 16%

                  Sherrod Brown             Ohio                    6.9%          Trump by 8%

With those 6 Senators almost certain not to support an estate tax increase, the Democrat victories in the Georgia Senate races are meaningless.

Two Democrat Senators From Georgia Will Won By A Sliver

New Senators Warnock and Ossof won with less than 1% of the vote. (Biden won the state with less than 0.3%.)  Neither would dare vote for an estate tax increase.

Republican Senators

Of course not a single Republican Senator will vote for an estate tax increase.  

Conclusion As To Federal Estate Tax

If you want to do estate tax planning because the federal estate tax exclusion will drop to ≈ $6,400,000 per person (from today’s $11,700,000 per person), by all means do so. 

Switching Parties

There is always the chance:

         *        Susan Collins from Maine, a state Biden carried; or

         *        Linda Murkowski from Alaska, who is disgusted by Trump

might become an independent and caucus with the Democrats.  Those changes might not change the results.

Caution As To California Tax

Unfortunately, this prediction ignores the possibility California might adopt (i) an estate tax^[iii] and/or (ii) a wealth tax.^[iv]  The same planning that will reduce or eliminate the federal estate tax will reduce or eliminate those potential California taxes.

Move

One way to lower your Federal and California income tax, without giving up your citizenship, is to move to Puerto Rico.  You can qualify for a (i) 0% rate on dividends and interest; (ii) 10% tax rate on capital gains for the first 10 years of residence and 5% thereafter; and (iii) 4% on business income.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

Bruce Givner

CITE AS:

LISI Estate Planning Newsletter #2882 (April 27, 2021) at http://www.leimbergservices.com, Copyright 2021 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited - Without Express Permission. This newsletter is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that LISI is not engaged in rendering legal, accounting, or other professional advice or services. If such advice is required, the services of a competent professional should be sought. Statements of fact or opinion are the responsibility of the authors and do not represent an opinion on the part of the officers or staff of LISI.

CITATIONS:

^[i] If I am wrong, the increase in the estate tax rate will be on large estates.  For example, perhaps Congress will pass a 55% rate for estates above $50,000,000.  Or $100,000,000.  If Congress reduces the exclusion it will do so in a phase-out for estates above $50,000,000.  Another fear people have expressed, based on a Biden proposal, is the loss of the step-up in basis on the parent’s death.  That would be viewed as an estate tax increase and meet with the same hostility.

^[ii] “I’m comfortable with my Republican friends.” December 16, 2020, 11:09 a.m. https://www.mediaite.com/news/sen-manchin-coy-on-switching-parties-if-dems-lose-georgia-im-comfortable-with-my-republican-friends/ “The West Virginian who calls himself a `moderate, conservative Democrat’ is poised to become the crucial swing vote in the evenly split Senate, and the last line of defense against a progressive leftist agenda, thanks to the apparent double Democratic victory in the Georgia Senate runoff.”  January 6, 2021 https://www.washingtontimes.com/news/2021/jan/6/joe-manchin-looms-key-swing-vote-democrats-poised-/

^[iii] The California “College For All Act,” which did not make the ballot in 2018, would have imposed an estate tax starting at 12% for estates of $3,500,000, rising to 22% for estates of $5,490,000 or more.

^[iv] Assembly Bill 2098, which died in the California legislature at the end of 2020, would have imposed a 0.4% annual tax on worldwide wealth over