Skip to Main Content
 

2021 Ushers in Decreased D.C. Estate Tax Exemption, Potential Additional Probate and Estate Tax Legislation

January 5, 2021

Last year, the D.C. Council passed the “Estate Tax Adjustment Amendment Act of 2020,” which broadens the reach of the D.C. estate tax to make up for other potential budget shortfalls.

Effective for people dying on or after January 1, 2021, this legislation will reduce the D.C. estate tax exemption to $4 million per individual. In 2020, the D.C. estate tax exemption was $5,762,400; therefore, the new legislation reduces the exemption by over $1.7 million.

From 2022 onward, the new $4 million exemption amount is scheduled to increase annually based on a cost of living adjustment.

The District of Columbia assesses an estate tax on decedents with includable assets that exceed the exemption amount. The tax is assessed using graduated rates, which reach a maximum rate of 16%.

As a consequence of the new legislation, estates that were already subject to the D.C. estate tax will face a higher tax bill, and some estates that would not have been subject to the estate tax under previous law will now face taxation. In addition, estate plans that use formulas incorporating the D.C. exemption amount will now result in different dispositions than were anticipated when the documents were signed. Those with D.C. assets should seek qualified counsel if they wish to review or revise their planning in light of the reduced exemption amount.

Even under the new law, the District of Columbia does not currently allow decedents to transfer their unused estate tax exemption to a surviving spouse or domestic partner at death. However, the D.C. Council is considering legislation that would bring this technique – known as “portability” – to the District. Portability already exists at the Federal level and in Maryland. The same proposed legislation would expand a surviving spouse’s “elective share” – the amount a spouse can elect to take regardless of what the Will says – to include both probate and non-probate assets and would allow real property held by spouses or domestic partners in tenancy by the entirety to be transferred to certain trusts while retaining creditor protection. This bill, the Trust and Estate Conformity Amendment Act of 2020 (B23-0919), is currently under consideration in the Committee on Judiciary and Public Safety.

Maryland and Virginia are not making similar changes for 2021. In Maryland, the exemption amount remains at $5 million, with no adjustment for inflation. In Virginia, the state estate tax was repealed effective July 1, 2007, although there was legislation introduced in 2020 to reinstate an estate tax. Caplin & Drysdale will follow the legislative developments in Virginia.

Caplin & Drysdale’s Private Client Group is ready to assist you and your family in analyzing the impact of the change in the D.C. estate tax exemption. Please contact one of the team members below if you have any questions.

Beth Shapiro Kaufman
202.862.5062
bkaufman@capdale.com

Anne J. O’Brien
202.862.5033
aobrien@capdale.com

Megan E. Wernke
202.862.5088
mwernke@capdale.com

Sarah J. Racicot
202.862.7854
sracicot@capdale.com

________________________________________________

About Caplin & Drysdale
Celebrating our 55th Anniversary in 2019, Caplin & Drysdale continues to be a leading provider of legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills -- combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment -- make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:
For more information, please visit us at www.caplindrysdale.com.
Washington, DC Office:
One Thomas Circle NW
Suite 1100
Washington, DC 20005
202.862.5000
New York, NY Office:
295 Madison Avenue
12th Floor
New York, NY 10017
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.
©2021 Caplin & Drysdale, Chartered
All Rights Reserved.