Dec 7, 2020

2020 Estate Planning – Winding Down

Yr End Estate Planning

With less than 30 days to the end of 2020 (for most it can’t come soon enough), time is fleeting to complete your year-end tax planning.


An individual can make gifts free of gift tax and without using lifetime exemption up to $15,000 per person per year.  A married couple can make gifts of up to $30,000 per person per year regardless of which spouse actually makes the gift.  (The annual exclusion amount is adjusted annually for inflation but will remain at $15,000 for 2021.)

Use it or lose it!  If you do not make a gift in any one year the exclusion for that year is lost.  If you have not already done so now is the time to take advantage of the annual exclusion.  Note that if the gift is made by check the check must clear by year-end to qualify as a gift made this year.  You can make annual exclusion gifts again in January for 2021.

Gifts to charity on the other hand need only be mailed by year-end in order to obtain a charitable deduction for 2020, even if the charity does not cash the check until 2021.  A gift to charity can also be made by credit card and is deductible in the year in which the charge is made even if the charge is not paid until 2021.  Don’t forget to get written substantiation of the contribution from the charity if you will be claiming a charitable deduction of $250 or more.

Federal gift tax, estate tax and generation-skipping transfer tax

The amount exempt from the federal gift tax, estate tax and GST tax is $11,580,000.  In 2021 it is scheduled to increase to $11,700,000.  The exemption adjusts annually for inflation, and in 2026 is scheduled to revert to roughly one-half of what it is now.  With the change in the political landscape, it is possible that change can come sooner.  In that case, if you are planning to make large gifts to take advantage of the exemption there is no reason to delay. Click here to view SGR’s prior alert on 2020 gifting.

How does a gift help reduce estate taxes?  Gifts of the annual exclusion amount and direct payment of educational and medical expenses that do not use any of your lifetime exemption escape estate taxes altogether.  A gift will also shift future appreciation and income out of the donor’s estate.  Gifts can also similarly reduce state estate taxes. [1]

Transfers between spouses in any amount are generally free of gift tax, however, there are limitations if your spouse is not a US citizen (regardless of whether he or she is a US resident).  The annual gift tax exclusion for gifts to non-citizen spouses is adjusted annually for inflation and will increase to $159,000 in 2021 (up from $157,000).

December 2021 Interest Rates

The annual short-term, mid-term, and long-term interest rates as set by the Treasury for December 2021 are .15%, .48% and 1.31%, respectively.  These are the minimum rates set by the Treasury that must be charged to avoid the imputation of interest.

The December 2021 Section 7520 rate is 2%.  This rate is used to calculate the value of certain transfers such as a grantor retained annuity trust (“GRAT”), charitable lead trust, or charitable remainder trust. Growth beyond this “hurdle” rate generally accrues to the donee.

The current low rates provide attractive estate planning opportunities with respect to GRATs, charitable lead annuity trusts, installment sales and intra-family loans.

Stay safe and Happy Holidays!

[1] Many states do not have a gift tax, including New York, New Jersey, Georgia, Florida, and California.

NY has an estate tax which adds back to the taxable estate a gift made within 3 years of death resulting in the payment of NYS estate tax on the gift.  The NYS estate tax exemption in 2020 is $5,850,000 and is scheduled to increase on January 1st to $5,930,000.

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