CLIENT ALERT – January 2021 Change in Estate Tax Exemptions

Whenever there is a change to estate tax laws, it can be particularly consequential to our clients.

Assets that comprise a Decedent’s (deceased person’s) “taxable estate” are assets considered under the Decedent’s control as of the date of his/her death.  Assets under a Decedent’s control and part of his/her taxable estate may be exposed to estate tax.  These assets often include real estate, retirement accounts, business interests, investment accounts, and policy payouts from life insurance policies.

The estate tax exemption refers to the amount of the taxable estate which may pass free from estate tax.  The value of a Decedent’s taxable estate which is over the estate tax-exempt amount may be subject to the imposition of state or federal estate tax (or both).

In the face of significant COVID-19-driven budgetary concerns, and looking for additional ways to raise tax revenue, the District of Columbia reduced the estate tax exemption from $5 Million to $4 Million for District of Columbia residents who pass away after January 1, 2021.

There remains an unlimited exemption for funds passing to a surviving spouse.  As such, the reduction in the estate tax exemption requires particular attention for unmarried or widowed clients and clients who desire to pass an amount in excess of the exemption to children or other individuals besides a spouse.

The District of Columbia is far from the only jurisdiction which will emerge from the COVID-19 epidemic with serious and significant revenue concerns, and it is highly likely that Maryland and other states will consider changes to their state estate tax exemptions.  In light of the changing political landscape in the White House and Capitol Hill, we are also monitoring estate tax changes at the federal level.  Federal estate tax changes warrant particular observation, as the federal estate tax is at a rate of 40% (compared with state estate tax rates which are generally 12-16%).

Please continue to monitor our newsletter as we will keep clients updated as to any changes in the estate tax landscape.  The implications of estate tax can be highly nuanced.  Please feel free to reach out to estate planning attorneys Jeremy Rachlin at jrachlin@bulmandunie.com or Jared Sands at jsands@bulmandunie.com if you’d like to discuss the impact of potential estate tax changes on your estate plan.