Tax Implications for Property Planning After Georgia Runoff – What Modifications? When? | Chambliss, Bahner & Stophel, PC

The possibility of tax changes affecting estate planning has increased significantly following the recent Georgia runoff. After January 20, the Democrats will control the House of Representatives, the Senate (with Vice President Harris tied as President of the Senate) and the White House. Although democratic scrutiny of all three branches of federal government could result in several changes to existing tax laws that affect estate planning (e.g., potential increases in individual and business income tax rates, eliminating the “increase” in the income tax base on death, etc.) focus this update on possible changes in the tax exemption amounts for federal lifelong estates, gifts, and generations, their associated tax rates, and the anticipated date of such changes.

What changes?

The current estate, gift, and generational transfer tax exemption (amounts that individuals can transfer over a lifetime or death free from estate, gift, and generational transfer taxes) is $ 11.7 million per person ($ 23.4 million) Dollars per couple). These exemptions are the highest since the modern inheritance tax was introduced in 1916. Transfers during life or death in excess of the above exemption amounts are currently taxed at a rate of 40%.

While the current exemption amounts should never be permanent (currently slated to be nearly halved to about $ 6 million by 2026), the likelihood that the exemption amounts will be significantly reduced after the Georgia runoff will increase significantly. Now that the Senate is perfectly split between the parties, Vice President-elect Harris is expected to cast a groundbreaking vote in a Senate vote that could reduce the exemption amounts. Vice President Cheney cast a similar groundbreaking vote that pushed through tax changes when the 2003 Employment and Growth Tax Compatibility Act was passed.

President-elect Biden has proposed reducing the exemption amounts from $ 11.7 million to just $ 3.5 million and increasing the tax rate from 40% to 45%, an additional tax of nearly $ 4 million for those affected People.


If a law is passed in 2021 to lower the exemption amounts and increase the tax rate, there could be three possible deadlines for such a law: (1) retroactive to January 1, 2021; (2) immediately upon entry into force (or retrospectively to legislation introduced in Congress); or (3) probably by January 1, 2022.

The U.S. Supreme Court has advised that a retrospective amendment to tax law will be honored if the amendment is rationally related to a legitimate legislative purpose. Increasing revenue to deal with historical pandemic spending is likely to meet this requirement. Although a retrospective reduction in the exemption from $ 11.7 million to $ 3.5 million and an increase in the tax rate from 40% to 45% would likely survive the constitutional challenge, tax commentators have indicated that the harsh impact and the perceived Injustice make retroactive effect unlikely A change with effect from January 1, 2021 would occur.

Some tax regulations are effective immediately or from the date the provision was introduced in Congress to restrict the taxpayer’s ability to plan for the change.

Our review of the legislative history of laws affecting the exemption amounts shows that the vast majority of those laws will be enacted with the effective date of January 1 of the following calendar year.

Strategic gift giving 2021

If you anticipate any rebate to exceed the $ 6 million exemptions through 2026 (or $ 3.5 million if you have concerns about paying taxes under the President-Elect Biden tax proposal), we recommend You, directly or confidently considering the strategic gift of assets now during the Liberation, levels are still at their historical highs. We are happy to suggest some techniques to reduce or eliminate the adverse effects of a retrospective reduction in exemption amounts. We suggest that such strategic gifts come sooner rather than later to avoid losing the ability to use the high exemptions on such gifts.