As of this writing, Congress has not passed legislation to accelerate the decrease in the lifetime estate and gift tax exemption, increase taxation of capital gains, or eliminate the “step-up in basis” on capital assets upon death.
Regardless of any pending legislation, it is important to note that the historically high Trump era lifetime estate and gift tax exemption will automatically decrease to approximately $6.2 million after December 31, 2025, from its current $11.7 million.
For individuals that would otherwise have a taxable estate worth more than $6.2 million if they died after 2025, there is obviously good reason to use up the remaining exemption before 2025; however, it is not clear that such persons should make a substantial gift as soon as they possibly can.
For individuals who believe their net worth may decrease in the next few years (such as, in the wake of a stock market correction) and who have assets worth more than the current exemption amount, it may be prudent to wait until such a decline to take advantage of a portion of the exemption. (i.e., so that one is not in a situation where the transferred assets are counted at their high value for purposes of determining how much exemption has been used up, but then subsequently decline in value after the transfer.)
A person in this situation may choose not to attempt to “time the market” and instead spread the risk of a major post-transfer decline by making several gifts over the next few years. A counterpoint to this line of thought is that for individuals who believe their assets are likely to increase in value, it would be best to make gifts of the assets right now so that the increase in value happens after the transfer and does not use up the further exemption.
Further, there is also a partial tradeoff between gifting assets during life and retaining assets in one’s name until death. Gifting assets during life avoids the estate tax at death but causes the assets to be subject to capital gains tax when the trust or other recipient eventually sells them. Conversely, retaining assets in one’s name until death, causes the assets to be subject to estate tax at death and gives a “step-up in basis” that can afford the recipient substantial savings on capital gains taxes upon sale of assets in the future. The bottom line is that a reliable answer cannot be gotten just by looking at the dollar value of one’s assets: built-in-gain of the assets and their likely changes in value in the next few years are relevant. As always, the personal goals of the client and the needs of the future recipient(s) are also relevant.
Though we are in a time of political and economic uncertainty, the ultimate answer is the same as always. The most prudent way to plan for the future is to have a thorough review of your assets, family circumstances, and economic goals with both your attorney and your financial advisor.