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Is Now the Time to Make a Large Gift? Uncertainty & Opportunity in 2020

gift giving tax 2020

What would a sweep for the Democrats mean for federal tax law?

With the 2020 election now only a month away, much uncertainty and anticipation now exist.  Polls, if they are to be relied upon, suggest a possible big win for the Democratic Party.  If they maintain their majority in the House, re-take the Senate and win the White House, many of the most prominent, including Joe Biden, Nancy Pelosi and Chuck Schumer, have promised to roll back the Trump tax cuts as soon as next year.  Such roll-back might even be made effective retroactively to January 1, 2021.

Most of the changes made by the Tax Cuts and Jobs Act of 2017, as related to individuals, are already set to expire after 2025.  Under this act we now enjoy an estate, gift and GST tax exemption amount of $11,580,000, per person.  This exemption amount is up from $5,490,000, where it stood in 2017 prior to the Trump tax cuts taking effect. This means that until the end of 2020 an individual dying or making a large gift, can pass up to $11,580,000 free of any transfer tax.  Thereafter a roughly 40% excise tax on the fair market value of the estate or gift would be paid.  For married couples, they can now pass up to $23,160,000.

In the event of a democratic sweep, as discussed above, such exemption may likely roll back next year to around $5.5 million per donor.  Some have even indicated 2021’s transfer tax exemption may even be reduced to as little as $3.5 million per donor!

Luckily, on November 26, 2019 the Treasury Department and the IRS issued final regulations under IR-2019-189 that there will be no “clawback” for any gifts made this year.  In other words, if an individual gives up $11.5 million in 2020, and the related exemption amount is reduced next year to something less than that, then the difference between those amounts would NOT be added back when computing the value of the taxable estate when the donor later dies.  Because of this, it might be said that you should “use it or lose it!

What can be done about this potential tax increase?

Because our office is already fielding dozens and dozens of inquiries regarding this unique circumstance, it is important that you call us now if you desire to receive counsel and assistance, prior to the end of the year, in determining how such a 2020 gift might be beneficial to your family and estate.  The analysis can be quite complicated, requiring us to take into consideration many factors.  Following is a list of some of the important points to consider:

Overall estate value

Health of the induvial and/or spouse

Carry-over income tax basis of capital assets

Importance of future basis step-up that occurs at death in estate of a decedent

Charitable gifting objectives

Whether property is characterized as community or separate property

Other prior transfers

The need/desire to retain control over and use of assets for future personal use

Maturity and readiness of beneficiaries to receive such large gifts

...and more.

Gifting strategies include the use of Spousal Lifetime Access Trusts (“SLATs”), Intentionally Defective Grantor Trusts (“IDGTs”) and other 365-Year Dynastic Trusts, Qualified Personal Residence Trust (“QPRTs”), and other more direct gifts to individuals and trusts.

While many are waiting for the outcome of the election to be determined before deciding how to proceed with their 2020 gifting strategy, it is much more prudent to begin the planning now.  Call our office at 702-938-2244 to discuss how you and your family might take advantage of this unique opportunity.