2020 Estate Planning Opportunities

Happy New Year! We hope your holidays were festive and relaxing. As we begin 2020, we remind you that one of your resolutions should be to take advantage of current estate planning opportunities before they disappear. The Federal estate, gift and generation-skipping transfer (GST) tax exemptions in 2020 are $11.58 million per person, up from $11.4 million in 2019. These exemptions were doubled in 2018 under the Tax Cuts and Jobs Act (TCJA) from $5 million per person to $10 million, indexed annually for inflation. Importantly, the exemptions are scheduled to revert back to $5 million per person (as indexed for inflation) at the end of 2025, absent new legislation. The opportunity to act on the increased exemptions is therefore of limited duration. Moreover, should Democrats win control of the White House and Congress in 2020, the time frame to act could be shortened as several Democratic Presidential candidates have proposed a dramatic lowering of the estate and gift tax exemptions. Click here to read The 2020 Elections: A Stimulus to Use Your Transfer Tax Exemptions? Concerns about an estate tax clawback scenario, where a taxpayer makes gifts under the increased gift tax exemption amount, but dies after 2025 when the estate tax exemption has reverted to $5 million, have been addressed by the IRS in regulations finalized in November 2019. Such gifts will remain sheltered as the estate tax is to be computed by using the higher of the exemption amounts in effect when the gifts were made during lifetime, or the exemption in effect at the time of death. Takeaways and Planning Considerations:

• The increased estate, gift and GST tax exemption amounts are temporary and scheduled to sunset on December 31, 2025. The increased exemption amounts could be lowered much earlier than January 1, 2026, depending upon the results of the 2020 federal elections.
• Under IRS regulations, gifts made at this time using the current increased exemption amount will not be clawed back into a decedent’s estate. Available gifting vehicles include establishment and funding of dynasty trusts, spousal lifetime access trusts, qualified personal residence trusts, grantor retained annuity trusts and intentionally defective grantor trusts. Click here to read 2019 Wills, Trusts & Estates Winter Alert.
• The New York estate tax exemption amount in 2020 is $5.85 million per person, up from $5.74 million in 2019. Although New York does not impose a gift tax, taxable gifts that are made prior to January 1, 2026 are includible in a decedent’s estate if they are made within 3 years of death. If a taxpayer makes a gift of the increased federal exemption amount more than 3 years before death, significant New York State estate tax savings can be realized. The New York State gift tax clawback for taxable gifts made within 3 years of death is scheduled to expire at the end of 2025.

We urge you to act, so you do not miss out on planning opportunities available under current law. Important Addendum: On December 20, 2019, the President signed into law the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act), comprehensive retirement reform legislation which may impact your estate plan. One of the most significant changes is the elimination of the so-called “stretch IRA” for non-spouse beneficiaries inheriting IRAs. Stay tuned for our forthcoming Client Alert on the SECURE Act.