At just past its midpoint, 2020 has certainly been an unpredictable year. The relentless shocks to our routines and expectations do, however, present a number of important and timely estate, gift and income tax planning opportunities. Uncertainty at a political level, and the possibility of further changes in the tax code, create urgency.

Gifting

A federal estate tax of 40% is due on taxpayer’s estates at death (if married, it is due on the death of the surviving spouse) if the estate(s) exceed the then available exemption amount. An available exemption amount is excluded from taxation, which amount can either be gifted during life or bequeathed at death with no gift or estate tax due. As between married persons, any unused portion of the available exemption amount can be carried over to a surviving spouse, or “ported,” to be added to their available exemption amount and is then later available for that person to use. For 2020, the current exemption amount is $11.58 million per person, annualized for inflation, thus increasing each year, until it drops back down in 2026. As a result, in 2026, the exemption amount will drop to $5 million, adjusted for inflation, which when indexed for inflation is expected to be approximately $5.5 million.

Proposed regulations which came out in November 2018, clarify that the IRS will not seek to claw back (or disallow) amounts gifted prior to the exemption amount being reduced in 2026. Importantly, the proposed regulations allow taxpayers to rely on this no claw back provision.

With uncertainty as to whether the November election could lead to a political power shift and a possible reduction in the gift and estate tax exemption amount, clients should consider gifting their full exemption amount. Additionally, in California, we have seen recurrent attempts to impose a California estate tax, though no measure is on the November ballot. While not successful to date, imposition of a California estate tax could happen in the future.

Given state and federal budgetary shortfalls arising from the COVID-19 crisis and general deficit spending, we see ongoing pressure to raise taxes on the wealthy. Further, presidential hopeful Joe Biden, aims to lower the exemption amount to $3.5 million if he is elected as set forth in his recent tax plans. Therefore, clients who can afford to gift should consider doing so since the ability to gift at these levels may not exist much longer. Obviously, no one should gift more than they are comfortable gifting or that they can afford.

News Source：【Withersworldwide 2020/08/11】