Vice President Kamala Harris’ campaign for the presidency has gotten a surge of momentum recently — and that has sent wealthy people scrambling to address a key area of their finances.
CNBC reports that many rich folks are worried that a Harris victory in November will result in a significant hike in federal estate taxes. As a result, some of these well-to-do citizens are trying to get ahead of any changes by transferring money now to family members or other beneficiaries.
Currently, due to a large exemption, the estate tax does not kick in until dollar amounts exceed $13.61 million for an individual, or $27.22 million for a couple. This means that if an individual dies in 2024 and leaves behind an estate that is worth less than $13.61 million, none of it would be subject to federal estate taxes.
This exemption amount was roughly doubled as part of the Tax Cuts and Jobs Act of 2017, which then-President Donald Trump pushed for and signed into law. The exemption amount is also regularly adjusted for inflation.
However, the generous estate tax exemption is temporary, set to expire at the end of 2025. Unless the next president joins with Congress to extend it, the exemption amount will fall to its pre-2018 level of $5 million (plus inflation adjustments) for an individual, according to the IRS. That would mean an estate worth more than $5 million or so would be subject to federal estate taxes.
Harris generally has indicated that she plans to raise taxes on the rich. Her campaign website states that her plan entails “rolling back Trump’s tax cuts for the wealthiest Americans.” So, an extension of the current estate tax exemption amount on her watch seems unlikely.
A victory by Trump might be more likely to result in an extension of the current estate tax rules. However, even if Trump wins, he might struggle to get an extension through Congress unless Republicans control both the House and the Senate, which was the case in 2017 but is not currently.
Without an extension, estates valued at more than $5 million or so would be subject to a lot more taxes. And the tax rate is as high as 40% on amounts above those thresholds.
Some rich people are not waiting around to see what happens. Instead, they are giving away money to heirs now in hopes of avoiding paying higher estate taxes.
However, this strategy comes with a big risk: If the estate tax exemption amount does not fall back, some people who gave their money away prematurely may come to regret the decision.
Although it might seem wise to wait until there is greater clarity about the future of the estate tax, CNBC notes that doing so also carries risks:
“It can take months to draft and file transfers. During a similar tax cliff in 2010, so many families rushed to process gifts and set up trusts that attorneys became overwhelmed and many clients were left stranded. Advisors say today’s gifters face the same risk if they wait until after the election.”
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