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Navigating Individual Year-End Taxes in an Uncertain Tax Landscape

Had the current occupant of the White House prevailed in the 2020 election, we would have had every reason to believe that there would be no changes to the 2017 income and estate tax laws. These laws included individual income tax cuts, substantial corporate income tax cuts and a significant increase in the federal estate and gift tax exemption equivalent, which will be at $11.7 million per person next year.

Similarly, had the Democrats gained several additional seats in the Senate (in addition to those possible in Georgia), together with the victory of President-elect Biden, we would have had great reason to believe that the corporate cuts would be reversed in part, individual income taxes would increase on those earning over $400,000 and an attempt would be made to reduce the estate and gift tax exemption equivalent to as low as $3.5 million.

However, given that the best the Democrats can do is control the Senate through the vote of the Vice President-elect, and at least one Democratic senator has expressed opposition to the repeal of the filibuster, it is unclear where the tax landscape will be heading next year. As a result, we believe it is safe to continue to plan under the current rules – keeping in mind, however, that those rules include a scheduled “sunset” of the 2017 provisions in 2025.

What to consider for your individual taxes before year-end

Those who can afford to make annual gifts up to $15,000 per person should consider the same. More extensive gifting continues to transfer both income and appreciation out of an estate and should be considered as well. This latter approach is even more significant when you take into account that the per person exemption under the Illinois estate tax law appears to be locked in indefinitely at $4 million.

For those who potentially have a taxable estate under Federal or Illinois rules, especially with the sunset of the higher exemption in the horizon, consider techniques such as family limited partnerships, GRATS, sales to defective trusts and a variety of charitable vehicles.

Clearly every situation is different, and an analysis of your personal goals and financial situation is critical. Fischel Kahn offers consultations and estate profile reviews to best protect your assets in these uncertain times.  

Bob Kaufman is a principal at Fischel Kahn, focusing on estate planning and the related administration, taxation, and litigation of estates and trusts.