A Planning Window May Be Closing

October 2, 2020

We are in an extraordinary period with respect to Estate and Gift Taxation. Under current law, in 2020 each individual has the ability to transfer $11,580,000 to descendants or to trusts for their benefit during life or at death (the “Applicable Exclusion Amount”). The Applicable Exclusion Amount is set to sunset January 1, 2026 and revert to an amount approximately one-half of the current amount.

We are also in an election year where the balance of power in Washington may change. To make matters more challenging, reduced federal revenue exacerbated by COVID-19 unemployment and a deficit increased in part due to COVID-related stimulus, make future tax policy even more uncertain. Each political party has a very different agenda as it relates to taxation – including Estate and Gift taxation.

What does this mean for you?

Depending on the election results, we believe there is a very real possibility the current Applicable Exclusion Amount of $11,580,000 may be reduced significantly as early as next year. What the Applicable Exclusion Amount will be if this happens is unknown, but it may be a simple thing to simply accelerate the planned 2026 sunset. So, we will use $5,800,000 (half of the current Applicable Exclusion Amount) for this example.

Action Items

1. Decide as a family whether you are currently ready, willing and able to make significant gifts to your descendants, or to trusts for their benefit;

2. Engage your advisory team – including your First Western team, your attorney and your CPA;

3. If the amount you are comfortable gifting exceeds $5,800,000, or $11,580,00 for a married couple, be prepared to make this gift by December 31, 2020;

For those that can, consider using your entire available Applicable Exclusion Amount of $11,580,000 ($23,160,000 for a married couple);

Note: If you have made prior gifts that required the filing of a gift tax return, subtract the total amount of these prior gifts from the $5,800,000;

4. If trusts are to be used to receive a large gift, have them drafted now – there will be a run on attorney time as we near yearend;

5. Decide on the assets that you want to transfer;

6. If non-publically traded assets are to be gifted (private equity, family LLC, etc.), schedule appraisals now – there may also be a run on appraiser time prior to yearend.

We clearly do not know what will happen in November or in 2021, but we do know that having plans made and the right structures in place will allow you to take the actions that best meet your family’s needs. Waiting until December may very well be too late. Do not hesitate to contact your First Western Trust team to discuss this or any other matters.


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