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Planning with the Increased Exemption Amounts, While they Last…

Ada Clapp, Partner, Citrin Cooperman Advisors LLC / Berdon Advisors LLC

09.14.20 | T&E Chat

The federal gift, estate, and generation-skipping transfer (“GST”) tax exemptions are currently at an all-time high of $11.58 million per individual for 2020 ($23.16 million for a married couple).   However, these increased exemption amounts won’t be around forever, so if you want to preserve the current $11.58 million, you would be wise to use your gift and GST tax exemptions in 2020.

Increased Federal Exemptions Are Temporary

The federal gift and estate tax exemptions allow an individual to make lifetime gifts or transfers at death (that would not otherwise qualify for a marital or charitable deduction or an exclusion—and so would be taxable) up to the exemption amount free of gift or estate tax.   The two exemptions are “unified”; which means that any part of the $11.58 million exemption used to shelter lifetime gifts from gift tax reduces the amount available to shelter death-time transfer from estate tax.

In addition to a gift or estate tax, transfers to grandchildren or more remote descendants are generally subject to a second level of tax called the generation skipping transfer or “GST” tax. The Federal GST tax exemption is currently also $11.58 million per individual.

Under current law, these temporarily high exemption amounts are scheduled to revert back to $5 million per individual (adjusted for inflation) starting in 2026.

Why there’s No Time to Waste

However, the exemption amounts could be reduced sooner (and more dramatically) depending upon the results of this year’s election, possibly with the reductions effective as of January 1, 2021. Since we have no way of knowing how soon or how drastically Congress might decrease the exemptions, you should consider making lifetime gifts that use up the $11.58 million gift and GST tax exemptions now, while you still have them.

Don’t wait too long to act on this—there is really no time to waste. This is because lifetime gifting can sometimes take time to implement. For example, you may need to create trusts or family LLCs or partnerships, you will need to select the property to be gifted, possibly have it valued, or you may need to open a bank account to receive the gifted property.   Bear in mind that estate planning attorneys and appraisers will be very busy at year-end with other clients trying to utilize the increased exemption amounts. It may also be difficult to open a trust or entity bank account quickly in the last few weeks of the year. We therefore suggest that you begin this planning as soon as possible to ensure that your gifts are completed by the end of 2020.

We at Berdon are happy to discuss various lifetime gifting techniques with you, so you can “use” and not “lose” the current robust exemption amounts. You can reach me at AClapp@BerdonLLP.com or you can contact your Berdon advisor.

Ada Clapp is a Berdon LLP Senior Principal with more than 25 years of experience, as a trusts and estates attorney, wealth strategist, and family office general counsel, advising high net worth individuals, fiduciaries, and family offices on a wide variety of matters. She has extensive experience advising on sophisticated income, gift and estate tax planning, philanthropy, fiduciary advisory and trust administration, family governance and family office operations.