November 19, 2020

Gift and Estate Tax Planning Opportunities to Consider Before the End of 2020

Gift and Estate Tax Planning Opportunities to Consider Before the End of 2020 Tax & Business

Economic conditions shaped by the COVID-19 pandemic have resulted in some unique opportunities for wealth transfer tax planning. Now is the time to take advantage of economic uncertainty to maximize gift and estate tax efficiencies. In our opinion, the gift and estate tax landscape has never been this uncertain, given the still-uncertain outcome of the 2020 election and the need for the government to raise additional revenues as a result of stimulus spending.

Before we leap in to some strategies for planning, let us recap the current law with respect to the annual exclusion and lifetime exemption. Keep in mind the current gift and estate tax rate tops
out at 40%.

Annual Exclusion

The 2020 annual gift exclusion is $15,000. This exclusion is the amount that can be gifted per person per year tax-free. In addition, married couples can elect to split gifts. Utilizing this strategy, married taxpayers can gift up to $30,000 to an individual in 2020. Annual gifting is an excellent way to reduce the value of a taxpayer’s gross estate over time, thereby lowering the amount subject to estate tax.

Lifetime Exemption and Portability

The 2020 estate, gift and generation-skipping transfer tax exemption is $11,580,000. The exemption is indexed for inflation under current law and is scheduled to sunset at the end of 2025, at which time the exemption amount will revert to $5,000,000, indexed for inflation. The exemption amount, however, may very well change sooner than 2026, given the current need for the government to raise revenues as a result of COVID-19. Lowering the lifetime exemption and/or raising the estate tax rate are other ways in which the government may look to raise additional revenue.

For those considering using the increased exemption now, the IRS has issued regulations which confirm that gifts made utilizing the enhanced gift tax exemption will not be clawed back if the exemption is reduced.

Portability allows a surviving spouse to use any unused federal estate tax exemption of his or her deceased spouse to shelter assets from the gift tax during the surviving spouse’s life. Portability is an imperative planning tool for taxpayers, especially if the death of a spouse occurs while the increased exemptions are in place.

Now that we have set the baseline, let’s discuss some strategies  to consider:


Married taxpayers may want to make lifetime gifts to use the balance of their exemption but may be uncomfortable in not having access to the gifted funds. Those taxpayers should consider making gifts to a spousal lifetime access trust (SLAT). The taxpayer who creates the trust will include his or her spouse as a beneficiary. By including the spouse as a beneficiary, the giftor grants the spouse direct access to the SLAT assets.

Sell Assets to an Intentionally Defective Grantor Trust

The taxpayer sells an asset to a grantor trust in exchange for a promissory note. (Real Estate owners often are great candidates for this strategy). By using a grantor trust, the sale of appreciated assets will not trigger any income tax. In addition, the grantor will continue to pay the income taxes on the trust income, thereby allowing the trust assets to grow tax-free. This strategy is ideal for assets with high potential for appreciation. Further, the income tax that the grantor pays on trust income does not constitute an additional gift.

Grantor Retained Annuity Trusts (GRATs)

With market volatility and assets trading at depressed values, your Marcum advisor can help you implement a Grantor Retained Annuity Trust (GRAT), whereby you transfer assets to a grantor trust. You retain an annuity interest for a term of years and leave the remainder to your children. If the assets appreciate during the trust term, that appreciation passes to your children without using any of your lifetime exemption amount. GRATs can be structured so that no lifetime tax exemption is used on the gift to the trust.

Refinancing Existing Promissory Notes

Consider refinancing existing promissory notes, particularly intrafamily loans. Interest rates are at historic lows, and this is a simple strategy that can preserve additional principal of a trust, thereby allowing more trust assets to grow for future generations.


Now is a good time to meet with your Marcum tax professional to discuss gift and estate tax planning recommendations. Current economic conditions present an opportune time to execute wealth transfer tax planning.

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