US Gift and Estate Tax update
The IRS has now released the updated US gift and estate tax exemptions applicable from 1 January 2021, as follows:
- The Lifetime Exemption has increased to $11,700,000 (up from $11,580,000 in 2020).
- Annual Gift Exemption has remained at $15,000.
- Annual Gift Exemption for gifts to a non-US Citizen Spouse has increased to $159,000 (up from $157,000 for 2020).
- The maximum rate of Federal Estate Tax and Gift Tax (after considering available exemptions) remains at 40%
What changes might be expected from the Biden administration?
- Potential increase in estate tax rates to 45%.
- Reduction Lifetime Exemption of $3,500,000, which could be retroactive.
- Potential loss of step-up in the basis to market value on death.
Many individuals have undertaken planning to mitigate against the potential downsides of tax law changes. Those who have not yet done so, may wish to consider planning such as
- Making large gifts before any reduction in the Lifetime Exemption takes effect (although any such reduction could be retroactive).
- It can sometimes be beneficial to make gifts even when the Lifetime Exemption has been fully utilised – paying gift tax during life is generally cheaper than estate tax on death, since the funds used to pay the gift tax are not included in the taxable estate on death.
- Selling assets to a grantor trust, so that future appreciation on the assets is outside of the scope of estate tax.
Individuals with a UK nexus will need to take account of any UK tax considerations, and Andersen can advise on both the UK and US aspects, as well as the interaction of the two systems.
Please speak to your usual Andersen contact if you would like to discuss any of the above issues.