No Matter Who Wins the Election, Now Is the Ideal Time to Do Tax & Estate Planning

National Estate Planning Awareness Week is coming up in two weeks. For me, that week comes 52 times a year. But I guess Hallmark needed an excuse for another greeting card. So let me be the first to wish all of you a Happy Estate Planning Awareness Week!

In honor of that special week, I am devoting this post to urgent tax planning considerations given today’s volatile political climate. I’m reminded of the Chinese fortune cookie that says, “May you live in interesting times.” When it comes to tax law, we are certainly living in “interesting times!”

I note that this post is based on my upcoming presentation at the virtual Oil & Gas Investor Summit, where I will be speaking on the topic entitled “No Matter Who Wins the Election, Now is the Ideal Time to Do Tax & Estate Planning.” You can tune in to the summit by registering for free here, and I will be speaking tomorrow around 5 PM Central Time. If you miss it but still want to watch, the recording will be posted on the website as soon as it’s available. Also, a copy of my PowerPoint can be found here. As I stated at the start of my presentation, I am not taking any political positions in this discussion. I’m not advocating for the red or the blue. I deliberately wore a purple tie so no one could draw an inference from a tie that was red or blue. I’m just presenting facts.

As described below, the presentation explores how the election outcome may impact tax law under three scenarios: Divided Government, Triple D (Democrat White House, Senate, & House), and Triple R (Republican sweep). We have no way of predicting which outcome will happen, but regardless of who wins, here’s what we know for sure:

Most of the tax cuts in the 2017 Trump Tax Act (“Tax Cuts & Jobs Act”) will sunset at midnight on December 31, 2025. Plan now to lock in tax benefits before they expire.
Neither party is proposing to lower individual income tax rates. No matter who wins, income tax rates won’t go down.
The recent rise in interest rates and government spending has more than doubled the annual cost of US debt service. A day of reckoning is coming when we’ll have to deal with the soaring national debt.
No matter the election results, tax law change is coming. Take advantage of extraordinary opportunities in today’s “Golden Age of Estate Planning” before the window closes.
History tells us that those who plan under the current law, before new laws go into effect, will most likely be grandfathered.

We recently learned that the lifetime estate exemption rises on New Year’s Day 2025 to $13,990,000 per person (for ease of discussion, let’s round that to $14 million). But be aware that on New Year’s Eve 2025, that $14 million exemption shrinks to $7 million. As I’ve so often encouraged, now’s the time to do “squeeze & freeze” planning to lock in the extra $7 million before it goes to zero. It’s a “use it or lose it” situation. And with the top income tax rate rising from 37% to 39.6% in 2026, consider doing a Roth IRA conversion in 2025 and paying a lower income tax hit. The PowerPoint goes into detail on these and other ideas, but I’ll close with what to anticipate under the three election scenarios.

If We Have a Divided Government

Most tax cuts in 2017 Tax Act will sunset; it’s already baked into the law.
Ordinary income tax rate will increase from 37% to 39.6%. (Note: corporate tax stays at 21% but 20% 199A deduction expires).
Convert a traditional IRA to Roth in 2025, and pay income tax hit at lower rates.
Accelerate income/ take gains in 2025 rather than 2026.
Postpone SALT (state and local tax) payments/ property taxes exceeding $10,000 until 2026 (when $10,000 SALT cap is gone).
Make large cash gifts to public charities before AGI deduction cap sunsets from 60% to 50%; otherwise consider postponing contributions to 2026 when tax rates are higher.
Lock in the $7 million “bonus” lifetime exemption before it goes to zero.
Review formula gifts in estate plans tied to size of the exemption.

If We Have a Triple D Outcome

Quickly engage in “squeeze & freeze” transfers to trusts.
Use in-kind assets to repay balance due on notes from prior sales to grantor trusts.
Anticipate these possible changes (in addition to sunset):
Reduce lifetime exemption to $3.5 million.
Increase long-term capital gain rate from 20% to 28% (for investors with income over $1 million).
Increase NII (net investment income) tax from 3.8% to 5%.
Impose an annual tax on unrealized gains for taxpayers worth $100 million.
Increase corporate tax from 21% to 28%.
Increase estate tax rates from 40% to 55%, 60%, 65%.
Limit valuation discounts.
End use of grantor trusts.
Eliminate basis step-up at death.
Limit annual exclusion gifts to $10,000 per person and $20,000 per donor per year.

If We Have a Triple R Outcome

Anticipate efforts to make tax cuts in 2017 Act permanent.
$10,000 SALT (state & local taxes) cap likely to remain in place.
Expect efforts to reduce capital gains tax and corporate income tax.
Expect provisions to eliminate tax on tips and on social security benefits.
Do not anticipate efforts to reduce individual income tax rates.

Once again, Happy Estate Planning Awareness Week to everyone. My hope is that you’ll use it to take advantage of “Golden Age of Estate Planning” before it’s too late.