Tell a friend, please — you may have seen me and other estate planning attorneys blogging recently on proposed changes to Section 2704 regulations taking effect at the end of this year. While these changes affect the kind of estate tax avoidance planning that we use for larger estates, and your estate may not be “large” under current law, the election on November 8 may change a lot. For example, under current law “large” is $5.45MM. If DJT is elected, he may go through the motions of attempting to repeal the estate tax, but few really expect that to happen. If HRC is elected, she will try to reduce the exemption down to $3.5MM or perhaps further to $1MM, and if Congress flips she may get her wish — and if that happens, a lot of families may need to do some rather urgent planning before the end of the year and it may be very difficult to find an estate planning attorney available to help. Therefore, it is an extremely good idea to get the basics in place before the election, if you have not already done that.
First, let me note that most of my married clients that are even close to the exclusion amount, as a precaution sometimes even down to $2MM or so, use so-called Clayton election planning as a flexible means to do some post-mortem tax planning at the first death based on any changes to law, assets, or family situation at that time. This wonderful device serves many purposes but the main one is to optimally avoid both estate tax and income tax on capital gains. Thus, if necessary, such planning will allow a couple to use portability to efficiently use each spouse’s full exclusion amount. This planning will work (as far as we know) regardless of who wins the election and regardless what happens to the exclusion amount.
Right now, with Clayton election planning, a combined estate of $10.9MM is protected (twice the current exclusion amount). If HRC is elected and she succeeds in dropping the exclusion perhaps to $1MM (though she currently proposes $3.5MM, she has already proposed dropping gift tax exemption to $1MM and normally gift and estate tax are unified), then the Clayton election portability planning only protects a combined estate of $2MM.
So while the Clayton election should optimize estate/gift and GST tax planning regardless of any foreseeable changes, the lower the exclusion, the more families become “large” estates and need advanced tax planning of the sort governed by Section 2704. And the imminent problem for such families is that regulations go into effect at the end of this year which sharply curtail such planning.
In other words, even though it may take several years for HRC (assuming she is elected) to actually succeed in reducing the estate tax exclusion, making your family a “large” estate, your window for getting assets out of the estate (i.e., smart tax planning) will likely disappear at the end of this year.
If HRC is elected, there will be a HUGE rush to complete the necessary planning before year end. It is strongly recommended you get the basics in place before the election.