Recission: Considerations and Applications for Planning in 2021

This article was originally posted on Steve Leimberg’s Estate Planning Email Newsletter as Archive Message #2909.

The Federal Legislature is currently debating an additional $3.5 trillion reconciliation-based social funding plan, the “Build Back Better” proposal. While it is impossible to determine exactly what, if any, changes to the tax code will be enacted from the proposal, many practitioners have urged their clients to plan proactively and avoid a ‘wait and see’ strategy, due to the chance such a strategy would result in ‘wait and pay.’ However, with the fact that several of the proposals include enactment dates that are on “date of enactment,” there is a possibility that the opportunity to plan will soon pass, if it has not already passed.

The amount of uncertainty in planning during this period has necessitated practitioners consider ways to provide clients with the ability to plan, while also including mechanisms in planning wherein a transaction can be either rescinded or unwound in an attempt to avoid an unfavorable tax result due to legislative changes that may or may not be enacted at a later date. Recission is one technique that practitioners might consider including in their toolkit to employ when trying to plan for the level of uncertainty that has to be dealt with for transactions completed before legislation is enacted. Recission may offer a means to unwind a transaction in the current tax year and thereby avoid a possible income tax consequences to a transfer.

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