Charitable legacies: What’s on tap for bequests?

Perhaps the one component of President-Elect Biden’s proposal with the biggest potential impact on ultra-wealthy philanthropists is his intention to raise estate taxes and change the way capital assets are taxed after death.

Currently, the gift and estate tax exemption per person is $11.58 million and $23.16 million for a married couple.

These amounts are effectively double what they were before the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA calls for an automatic sunset of these increases on December 31, 2025, at which point the exemption will drop back down to $5 million per person, as adjusted for inflation. Under the President-Elect’s proposed tax plan, though, the estate and gift tax exemption and rates would be restored to the lower levels of more than a decade ago.

In addition, Biden’s proposal calls for substantial elimination of the step up in basis from the taxpayer’s cost to fair market value at the time of death, further complicating existing estate plans for many families.

Some philanthropists are maximizing gifts to family members in 2020 to take advantage of their remaining exemptions and deferring charitable gifts to 2021 and beyond, under the assumption that tax laws will change dramatically. Others simply are not comfortable with making such large gifts immediately–and thereby significantly reducing their own net worth–when it might end up not mattering.

As you know, at the Greater Cincinnati Foundation, we encourage anyone considering making a charitable gift for tax purposes to consult their tax advisor to discuss the best approach. As clients reach out to you, we are here to assist you!