Unique Estate Planning Opportunities in 2020

By: Ami S. Longstreet

The federal gift and estate tax exemptions (the amount an individual can give away during lifetime and at death before which there is a federal estate or gift tax) have varied wildly over the last few years.  Below is a chart demonstrating the drastic changes in the federal gift and estate tax over the years.

Federal Tax Act Federal Estate and Gift Tax Exemption Amount Relevant Years
Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 Increased from $675,000 to $3.5 million from 2001-2009 2001-2009
Post – EGTRRA No estate tax 2010; for those who chose to allow for carryover basis
2010 Tax Relief Act $5 million, indexed for inflation 2010-2012
American Taxpayer Relief Act of 2012 (ATRA) $5 million, indexed for inflation 2013-2017
Tax Cuts and Jobs Act (TCJA) of 2017 $10 million, indexed for inflation 2018-2025
Post-TCJA Reverts to 2017 figure, indexed for inflation 2026

The most recent change, brought about by the Tax Cuts and Jobs Act of 2017, increased the federal gift and estate tax exemption to record highs.  In 2020, the federal gift and estate tax exemption is $11,580,000 per person ($23,160,000 for a married couple), after which there is a federal estate tax subject to a top marginal rate of 40%.  The federal exemption amount, if not changed before by legislation, is scheduled to revert on January 1, 2026 to $5,000,000 per person ($10,000,000 per married couple, indexed for inflation).

It is possible that as a result of either federal administration changes or the increasing deficit, changes will be made to the estate/gift tax exemptions. Given the political climate and the historic bailouts, it would not be surprising if the estate tax exemptions are reduced significantly after the election.

Therefore, there is a unique opportunity to make gifts now, in 2020, either in trust or outright, to take advantage of the historically high federal tax exemptions, while they are still available.  Additionally, there are estate planning techniques which may allow individuals to leverage the exemption using valuation discounts and other planning strategies, which may be particularly useful, in this historically low interest rate environment.

An additional benefit to making gifts now, relates to the New York estate and gift tax rules.  New York State’s exemption amount for 2020 is $5,850,000 ($11,700,000 for a married couple).  However, New York does not have a gift tax.  Therefore, if an individual makes a gift in 2020, and survives three (3) years, that gift is completely excluded from the individual’s estate, for New York State estate tax purposes.

In other words, for Federal and New York State Estate tax purposes, now is the time to make large gifts, to avoid a potentially large estate tax later.