Beth Kaufman Comments on How Upcoming Tax Changes Could Effect Estate Planning

Tax Notes

The Democrats’ success in the 2020 election doesn’t necessarily mean estate planners’ worst doomsday tax scenarios are inevitable.

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During a separate American Law Institute Continuing Legal Education webcast February 9, Beth Shapiro Kaufman of Caplin & Drysdale likewise remarked that even though President Biden has no shortage of proposals to raise taxes on the wealthy,  tax increases as a goal in itself is “clearly in a lower tier of objectives.”

The most likely source of tax increases would come in a budget reconciliation bill for fiscal 2022, which begins October 1, according to Kaufman. But given that the Democratic Party is “not a super-homogeneous group,” and that estate and gift tax changes are relatively small revenue raisers, “it’s really unclear whether this would even happen in 2021 at all,” she said.

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Kaufman agreed and added that it would be unusual for lawmakers to cherry-pick a provision like the gift tax to make only that one retroactive, while everything else is prospective. More likely, she continued, the issue is what the effective date will be for the whole bill.

Alternative effective dates for a tax increase would be the date of proposal by the congressional committee, date of enactment, or a prospective date, like January 1, 2022.

Making a provision effective on the date it is first proposed is also typically reserved for an egregious abuse Congress has signaled it wants to stop, Kaufman said, though she quipped that she could “make an argument that all kinds of things we do as estate planners are egregious, and Congress would want us to stop doing them.”

“So that’s not completely off the table, but seems somewhat unlikely,” Kaufman added.

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The other options — date of enactment or a prospective date — are more reasonable, and in both cases, estate planners would have at least some time to scramble and help their clients plan accordingly, Kaufman said.

Still, nothing is certain, Kaufman said. “You can take my advice, and whatever a cup of Starbucks costs, you can get a cup of coffee, because if you really want to be sure that there isn’t going to be a retroactive change that applies to your clients, then you’d need to plan for it,” she said.

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