Presidental Debates: A Forecast for Estate Tax Policy Changes

As the political landscape shifts with each presidential election, so too does the tax policy. For those involved in estate planning, keeping an eye on these changes is crucial. Presidential debates often serve as the first glimpse into potential tax policy changes that could impact estate planning strategies. This article will guide you on what to watch for in the presidential debates if you’re trying to stay up-to-date on tax policy that may impact your estate and estate plan.

The Role of Presidential Debates in Shaping Tax Policy

Presidential debates are a platform where candidates outline their policies, including their plans for tax reform. These debates can provide valuable insights into potential changes in tax laws that could affect estate planning. By paying close attention to these discussions, you can anticipate possible shifts in tax policy and adjust your estate planning strategies accordingly.

Historical Perspective

Historically, tax policy changes often follow the promises made during presidential debates. For instance, during the 1960 debates, Kennedy proposed a reduction in income tax rates, which was later implemented in the Revenue Act of 1964. This act reduced the top marginal tax rate from 91% to 70% and the corporate tax rate from 52% to 48%.

Similarly, Reagan’s 1980 debates with Carter hinted at the Economic Recovery Tax Act of 1981. This act slashed estate taxes and trimmed taxes on capital gains. More recently, the 2016 debates between Trump and Clinton foreshadowed the Tax Cuts and Jobs Act of 2017, which lowered the corporate tax rate from 35% to 21% and doubled the estate tax exemption.

In the 2020 debates between Trump and Biden, the American Rescue Plan Act of 2021 was a key point of discussion. This act provided significant economic relief in response to the COVID-19 pandemic, including stimulus payments, child tax credits, and unemployment benefits.

Watching the Debates with an Estate Planning Lens

When watching the debates, focus on the candidates’ stance on estate taxes, capital gains taxes, and income taxes, as these can directly impact your estate plan. Also, pay attention to discussions about wealth tax, corporate tax rates, and tax breaks, as these can indirectly affect your estate’s value and the inheritance you leave behind.

Key Terms to Look Out For

Understanding the language of tax policy can help you better follow the debates. Here are some key terms to look out for:

Estate Tax: This is a tax on your right to transfer property at your death.

Gift Tax: This is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return.

Capital Gains Tax: This is a tax on the profit realized on the sale of a non-inventory asset.

Income Tax: This is a tax on an individual or entity’s income.

Tax Exemption: This is a monetary exemption which reduces taxable income.

Tax Deduction: This reduces income subject to tax, possibly by decreasing or eliminating tax liability.

Tax Credit: This is an amount of money that taxpayers can subtract from taxes owed to their government.

The 2026 Tax Exemption Change

The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the federal estate and gift tax exemption, allowing an individual to give away a larger amount during their lifetime or at death without incurring federal estate or gift tax. However, this increase is temporary and set to expire at the end of 2025. Unless Congress extends these provisions, the exemption will revert to its pre-TCJA level in 2026, estimated to be around $7 million per individual, adjusted for inflation.

This potential decrease could impact estate planning, particularly for individuals with estates close to or exceeding the current exemption level. It may be advantageous to make gifts now while the exemption is higher. However, the IRS has assured that individuals utilizing the increased gift tax exemption from 2018 through 2025 will not be adversely impacted after 2025 when the exemption amount decreases. As always, consulting with a qualified estate planning attorney or tax professional is recommended to understand potential tax implications and develop a suitable strategy.

Staying informed about potential tax policy changes can help you make proactive adjustments to your estate plan. While it’s impossible to predict the exact outcomes of these debates, being aware of the candidates’ proposed tax policies can provide valuable insights for estate planning.