Estate and Gift Taxes 2021

The federal gift and estate tax exemption amount is now the highest it has been since the tax was enacted in 1916. This means you can pass more to your heirs today, without paying any federal gift or estate tax, than ever before in the past century

In 2021, anyone can give away up to $11.7 million during their lifetime or at death without being subject to federal gift or estate tax. That amount doubles for a married couple. So, if a husband and wife with assets of $23.4 million both died in 2021, their estate would not be subject to federal estate tax. Any amount over the exemption would be taxed at a 40% rate.

Why Consider Making Large Gifts Now?
The gift and estate tax exemption amount is scheduled to be cut in half in 2026. But many believe the exemption amount will be cut before then depending on possible new legislation.

Congress also could eliminate or scale back estate planning techniques that leverage the exemption amount or impose additional taxes on top of the existing federal estate tax.

Should You Gift Now, or Wait?
If you are concerned about estate taxes, the potential for change in the gift and estate tax rules raises an important question: Should you make gifts in 2021 and use your current exemption or wait and risk losing it?

The chart shows the estate tax exemption amount over the past 20 years and projects what the next five years may look like. The exemption amount has been trending up (except in 2010 when the federal estate tax was repealed for one year). It increased most dramatically between 2017 and 2018.

The Trend of Increasing the Estate Tax Exemption May Be Coming to an End
But this history of steady increases is exactly why many people think Congress will break the cycle and roll back the exemption amount.
Additional proposals have been made to:

  • Remove or limit several estate tax savings techniquies, such as Grantor Retained Annuity Trusts and annual exemption gifts.
  • Repeal the “step-up” of income tax basis for property that transfers at death.
  • Impose a “deemed realization” of capital gains at death, meaning capital gains tax would apply to assets when they transfer at death.

Who Should Consider Gifting Now?
If you think your estate could be subject to federal estate tax, consider gifting in 2021. For those with large estates with more than the current exemption, you could save more than $4 million in estate tax simply by making lifetime gifts before the exemption amount is reduced. If your estate is below the current exemption, you still may want to consider gifting since the estate tax could be back on the table for you if the exemption goes down.