The recent election has many wondering whether they should take estate planning actions before the end of the year. Here are some thoughts for you to consider before making significant gifts before the end of the year.

TCJA

For 2020, the annual gift tax exemption is $15,000 (effectively $30,000 for a married couple) per recipient. So, a married couple could gift $30,000 of cash or other assets to ten different family members (a total of $300,000 of gifts) without incurring any federal gift tax in 2020 — or tapping into their lifetime federal gift and estate tax exemption.

In addition, the Tax Cuts and Jobs Act (TCJA) nearly doubles the current lifetime federal gift and estate tax exemption. For 2020, the inflation-adjusted exemption is $11.58 million (effectively $23.16 million for a married couple). But these generous exemptions are set to sunset on December 31, 2025 — and Congress may reduce them even sooner, depending on the results of the election, and future needs to generate revenue to fund COVID-19-related relief measures and other expenditures.

Why make gifts at year end?

Due to the recent election and both candidates’ differing tax proposals, many taxpayers are preparing for significant changes to gift and estate taxes. Concerns have also surfaced regarding when new tax laws would become effective, some worried that any new law could be retroactive to January 1, 2021.

For these reasons, many are considering locking in their exclusion amount now by making gifts prior to the end of 2020.

It could be beneficial to make gifts now to take advantage of the increased exemption amounts before they possibly expire or are repealed. Make note that even if the estate and gift tax exemption amounts decrease to $5 million or lower, the IRS has stated that lifetime gifts in excess of that amount made before the exemption is lowered will continue to be exempt from estate and gift tax.

Should you make a gift before year-end?

Making a gift could be worthwhile if you:

• Have not already used all of your exemption amount
• Are able to use most or all of your remaining exemption amount without disrupting cash flow or financial security in the long run
• Have assets that, if gifted, would be beneficial tax-wise.

If you’re hoping to lock in your exclusion amount this year, you’ll want to act quickly because gifts of assets other than marketable securities will require professional appraisals.

Reach out to our PCS Team for more guidance.