Nobel Prize Day is observed annually on December 10th. And much like 2020, even Nobel Prize Day was not without its controversies. Alfred Nobel was an inventor and businessman, and at the time of his death on December 10th, 1896, he had 355 patents worldwide (one of them was the patent on dynamite). On November 27, 1895, Alfred Nobel signed his third and Last Will and Testament (“Will”) at the Swedish-Norwegian Club in Paris. When it was opened and read after his death, the will caused a lot of controversy as Nobel left his enormous fortune for the establishment of a prize to award those who helped humankind in the areas of physics, chemistry, medicine, literature, and peace. His family opposed the creation of the Nobel Prize, and the prize awarders he named in his Will refused to do what he had requested. It was five whole years before his wishes were honored and the first Nobel Prize was awarded in 1901.
And The 2020 Nobel Peace Prize 2020 goes to…the World Food Programme (WFP) “for its efforts to combat hunger, for its contribution to bettering conditions for peace in conflict-affected areas and for acting as a driving force in efforts to prevent the use of hunger as a weapon of war and conflict.”
Now that we have solved that riddle, what other major events happened to you in 2020?
Did You Get a Divorce in 2020?
Much like COVID-19, divorce rates have spiked in the U.S. during the coronavirus pandemic as couples have been stuck at home together for months. The number of people looking for divorces in 2020 was 34 percent higher from March through June compared to 2019, according to new data collected Legal Templates, a company that provides legal documents.
If you are a new “divorcee” – welcome to a new beginning! Along with your change in marital status, also comes a change in your estate plan. Suddenly you may find yourself solitary in a quiet house, perhaps the kids have grown up, they have moved to another place or went to college. Now your needs as a parent are much different.
If you once prepared a Will when your kids were small, your priority might have been naming a guardian to raise them. If you have older documents, the people you named may no longer be around or may not be who you would choose today.
Likewise, your older documents likely name your former spouse as the main person in charge (and possibly the main beneficiary). Divorce cuts off these legal roles and the inheritance, but it also leaves a gaping hole in your estate plan. Only now do you realize how out-of-date your estate plan is.
If you never had an estate plan, now is the time to reorganize your life and put your wishes in writing. This will allow you to name the people who will be in charge in case of your death or incapacity, as well as who the beneficiaries are. Below are four things to pay attention to.
- Durable Power of Attorney and Health Care Proxy:
- A Durable Power of Attorney names someone to take over your financial affairs if you are unable to manage them yourself (due to illness or incapacity).
- A Health Care Proxy (aka Health Care Surrogate) appoints someone to make your health care decisions if you cannot make them yourself.
- A Living Will makes your wishes known if you have an injury or illness that you will not recover from.
- It is common for one spouse to leave everything to their spouse in case of your sudden death, but that is not the best way. It is better to create a Trust naming your children as beneficiaries. Trusts allow for all kind of provisions that account for divorce, death, and so on. You can create as many “back-up” plans as you like to ensure your children are cared for.
- Likewise, perhaps you may want to delay the age your children will receive their inheritance, because they are not as mature at age 18 as you thought they would be.
- If any of your children have special needs, there is a special type of Trust for that as well. Special Needs Trusts allow for your child to receive an inheritance and still allow them to receive current or future government benefits.
What is the Road Ahead with the New Biden Administration?
It was a knock-down, drag-out fight that divided much of the nation for months. Who are we kidding? For years – leading up to Election Day. But former Vice President Joe Biden squeezed out a victory, although President Donald Trump insisted on a different result.
The election played against the stark backdrop of a deadly pandemic, a battered economy, and a myriad of hot-button racial and immigration issues. Almost lost in the partisan spectacle has been the future of taxes and the white-hot housing market. Although it is too soon to tell, here are some likely changes on the horizon.
As estate planning attorneys, we also know that these presidential and congressional elections will have far-reaching implications, particularly for your taxes.
- Estate Tax:
- Stepped-up Basis
Under our current laws, the lifetime estate exclusion amount is $11,580,000 per taxpayer, or $23,160,000 for a married couple. Meaning that after someone dies, if their estate is in excess of the exclusion amounts, their family can expect to be taxed at 40% of anything above the exclusion amount. If President Trump is re-elected, the current estate exemption is set to expire at the end of 2025, at which point the exemption amounts will be reduced to $5,000,000, or $10,000,000 for a married couple, indexed for inflation. Trump favors making the current doubled exemption amount permanent, while Biden proposes a decrease in the exemption amount to “historical norms.” While Biden hasn’t indicated his proposal of any specific amount, it is likely that this would mean at least a reduction to the pre-TCJA amount, which is about half of the current exemption, and potentially a decrease to an exemption of $3,500,000. (Which was the 2009 exemption amount under the Bush tax cuts and has been proposed by Democrats in recent years.)
Here’s how stepped-up basis works. Mom bought her home in the year 2000 and lived in it ever since. Mom passes away in 2020 and leaves her home to her children. This home has been appreciating in value for 20 years. Yet when mom died and this asset passes to her heirs, this home rises to the market value as of her date of death. Her children then inherit the home and receive this “stepped-up basis.” If the children choose to immediately sell the home, they can do this and expect to pay minimal to no income tax on the capital gains. Note that an elimination of stepped-up basis will result in increased capital gains taxes for those that inherit the assets. Trump will keep the concept of stepped-up basis in place, whereas Biden has proposed to repeal stepped-up basis adjustments for assets that appreciated upon the taxpayer’s death. This could mean that certain assets in someone’s estate will realize any capital gains on the decedent’s passing, making the capital gains tax due immediately.
The new Congress will not take office until January 2021, but if new tax legislation is enacted within the first several months after inauguration, there is the possibility that new laws may be retroactive to Jan. 1, 2021. Alternately, regardless of who is the new President, the further we drift into 2021, the more likely it becomes that we would not see any new tax legislation until 2022.
The estate exemption tax still affects relatively few taxpayers, but if you are among that group…it matters. Even families whose estates currently are below exemption amount may find themselves with taxable estates in the next year or two. All this means that everyone with estates that come close to the estate exemption, (or even half of it) should revisit their estate plans to make sure everything will still function as intended.
Parting Words: 2020 thank you for the lessons. 2021 – Let’s Do This! If you have any questions on your recent divorce, new tax laws, or other legal matters brewing in 2020, contact OC Estate & Elder Law at (954) 251-0332 or email@example.com for a free consultation. Our attorneys speak English, Spanish, and Russian.