Estate planning in the second quarter of 2021 provides continuing opportunities for clients seeking to preserve and transfer wealth while minimizing or avoiding gift and estate taxes. This Client Alert written by Partner Michael D. Whitty provides information on three hot topics:
1. Extended Deadline for Individual Income Tax Returns: The IRS has announced the postponement of the due date from April 15 to May 17, 2021 for individual income tax returns (Form 1040). Business entity returns and gift tax returns (Form 709) were not postponed, and first-quarter estimated tax payments are still due on April 15.
2. Retroactive Cuts in the Gift and Estate Tax Exemption During 2021 Are Now Less Likely: The passage of several months and the use of one of Congress' reconciliation procedure opportunities (see discussion below) makes the predicted cut in the gift and estate tax exemption less likely to be retroactive to January 2021. Taxpayers wishing to use their currently large gift tax exemptions and/or to use other advanced wealth transfer techniques should act before October 2021 to reduce the risk of missing opportunities because of changes that are prospective from the date of enactment (or the even earlier date of legislation passing through committees).
3. Popular and Powerful Wealth Transfer Techniques May Be Curtailed by Congress (Part II): The Biden Administration and Democratic majorities in Congress have signaled an intent to cut back on or eliminate several powerful estate planning techniques and rules, including grantor retained annuity trusts (GRATs), income tax grantor trusts, valuation discounts on transfers of partial interests in family-owned entities, and the step-up of income tax basis on death.