2020 Year-End Tax Guide

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THE MARCUM 2020 YEAR-END TAX GUIDE

The Estate Tax Exemption: How Much Was It and How Much Will It Be?

We all know the adage: there is nothing certain in life except death and taxes. But while taxes are for certain, they are far from being consistent. Over the past 20 years, Congress has enacted tax legislation that sometimes defies logic. These fluctuations present a number of challenges for estate planning, which makes it imperative to review estate plans annually. Once such tax law provision is the approaching “sunset” of the estate and gift tax exemption. When Congress passed the 2017 Tax Cut and Jobs Act (TCJA), the lifetime gift and estate tax exemption was doubled. For 2020, the exemption is $11,580,000 per person. For the next five years, the exemption will be indexed for inflation before sunsetting at the end of 2025. In 2026, the estate and gift tax exemption will revert to its pre-TCJA level of $5 million. Because the increase was temporary, many high net worth individuals considered that there was a limited window to reduce taxable estates by making gifts that utilize all or most of the lifetime exemptions during this period. Some high net worth individuals were concerned that for a death occurring after 2026, any gifts made in years where the exemption was higher could be “clawed back” into the estate. Fortunately, the IRS alleviated these concerns and subsequently issued a ruling indicating no “clawback.” This provides a unique opportunity to potentially accomplish significant wealth transfer utilizing the current higher exemption.