It’s been a long time coming, but on Thursday morning the House Ways and Means Committee finally got around to marking up tax legislation with more than 50 provisions. Those provisions include an expansion of the earned income tax credit for lower-income workers, renewals of expired tax breaks for a range of industries – from biodiesel manufacturing to craft breweries – and a fix to the “church parking lot tax” that applies to fringe benefits offered to employees of nonprofits.
The tax extenders in the bill would cost $33.2 billion in all, according to the Joint Committee on Taxation (JCT). However, the JCT reported that these extenders would be more than paid for with the Committee’s proposal to end the doubling of the estate tax exemption at the end of 2022, rather than at the end of 2025 as it is currently scheduled.
Most tax-watchers in Washington seem to agree that, as it’s currently written, this legislation doesn’t stand a chance of passing the Senate, even if it makes it through the House. But don’t let the discord in Washington lull you or your clients into thinking that everything is still fine. As this legislation makes abundantly clear, Congress is very aware that shortening the doubled exemption period – or lowering changing the estate tax exemption amount – would be a very expedient way of finding the funds needed to pay for other tax changes.
This legislative quagmire creates a barrier to assisting younger clients (in their 40s through 60s) who may be hesitant to go forward with legacy planning, or are just beginning to take steps to lock in their current insurability, given the fluid state of the estate tax (PDF). Flexible planning is the key to assisting these families. These clients should consider purchasing life insurance with cash values (PDF) that can be used as an alternate asset class and putting that policy into a flexible trust with lifetime access provisions (PDF). Alternately, they can take advantage of current low interest rates and lend money to a trust in exchange for a note (PDF) that can either be forgiven – should the exemption sunset – or repaid in the future. These steps will help protect clients against uncertainty from Washington and ensure they reach their goals.
Regardless of which path clients choose, let’s ensure that they don’t choose inaction and find the sun setting before taking advantage of their full – and temporary – doubled estate tax exemption amount.
As our expert policy advocates in Washington, AALU remains on top of all legislative and regulatory actions affecting our profession and our clients, and will work with us at NFP to keep you appraised of ongoing developments.