September 29, 2020

Possible Estate and Gift Tax Changes on the Horizon

Written By

Joseph B. Colvin
Member, Stoll Keenon Ogden PLLC

September 29, 2020

D. Randall Gibson
Member, Stoll Keenon Ogden PLLC
(502) 568-5733

John P. Broadhead
Member, Stoll Keenon Ogden PLLC
(812) 452-3577

D. Andrew Nestrick
Member, Stoll Keenon Ogden PLLC
(812) 452-3510

Joseph B. Colvin
Member, Stoll Keenon Ogden PLLC
(859) 231-3642

As the November 3 national election approaches, strong political winds are blowing. Government spending continues to far outstrip revenue. This situation has been further aggravated by spending for COVID-19.

Further, there may be a general trend toward increasing taxation on businesses, high income earning individuals, and individuals who have accumulated wealth.

All of this means there could be an impending increase in taxes generally, including the estate and gift tax. There is also speculation that any such changes could possibly be made effective retroactively to January 1, 2021.

Changes that we believe might occur are as follows:

1. Exemption Amount. The current exemption amount for estate, gift and generation-skipping transfer taxes is $11,580,000 per person (or $23,160,000 per couple). There is discussion that the exemption could be reduced to as low as $3,500,000 per person (or $7,000,000 per couple). In addition, the exemption for gifts made after January 1, 2021 could be decoupled again from the estate tax exemption and could be reduced to 2009 levels of $1,000,000. (Remember also that the amount of the exemption is already scheduled to reduce by 50% without further legislation on January 1, 2026; this reduction in the exemption could be accelerated.)

2. Estate and Gift Tax Rates. The current estate and gift tax rates on gifts that exceed the exemption amount is 40%. There is discussion that this rate could increase to at least 50% and perhaps higher on Estates of a higher value.

3. Step Up in Basis. Under current law, upon the death of an individual, the assets owned at the time of death receive a new income tax basis equal to the fair market value of the assets at the time of death so that any appreciation in those assets prior to the date of death avoids the income /capital gains tax. There is discussion that these “step-up” in basis rules could be eliminated and carry-over basis could be adopted so that the original cost basis of assets would be carried over to a decedent’s heirs, and if the assets are sold by the heirs, the heirs would pay capital gains income tax on the appreciation of such assets since the date originally acquired by the decedent. There is also discussion of increasing the applicable rate of tax on capital gains. Currently long-term capital gains are taxed at rates lower than ordinary income tax rates.

4. Grantor Trusts. Under current rules, income earned by a grantor trust passes through the trust and is taxed to the designated grantor of the trust; however, the assets in a properly drafted grantor trust can be excluded from the taxable estate of the grantor. There is some discussion that these grantor trust rules may change so that any assets held in a grantor trust would be taxable in the estate of the grantor of the trust at the grantor’s death.

Based on these potential changes, what are some planning strategies that you should be considering now:

A. Gifts Now. You should consider making current gifts before December 31, 2020 to utilize the full current exemption amount available, if possible, before the exemption is reduced.

B. Spousal Lifetime Access Trusts. If you are married, you should consider creating an irrevocable trust for the benefit of your spouse known as a “spousal lifetime access trust” (SLAT). This trust can be the recipient of a gift from you in the amount of your estate tax exemption. Your spouse can be a beneficiary of the SLAT during your spouse’s life. At your death, the assets of the SLAT will not be included in your estate for federal estate tax purposes. This is a way that you can utilize your estate and gift tax exemption at the current level of $11.58M but still benefit from the assets through potential distributions to your spouse.

C. Charitable Lead Annuity Trusts. With interest rates at all-time lows, you should consider leveraging your exemption amount and satisfying charitable desires by making a gift to a charitable lead annuity trust that benefits your favorite charities in the near term, and ultimately benefits your children.

With potential changes coming quickly, there may be an urgent rush to make changes in estate plans prior to January 1, 2021 that will be similar to the rush that occurred at the end of 2012 when there was uncertainty as to whether Congress might let the exemption revert from $5,000,000 per person to $1,000,000 per person.

We urge you to get out in front of this now. You should consider scheduling an appointment now with your estate planning team to consider possible steps to be taken and the perceived likelihood of changes in the estate and gift tax laws.

The attorneys at SKO are ready to meet with you and help you think about planning ideas that are right for you.


Stoll Keenon Ogden understands that these are trying times for our clients and our country. Our firm operations have continued uninterrupted and our attorneys are equipped to serve as we always have – for more than 120 years.

The firm’s Trusts & Estates law practice is dedicated to meeting the needs of families, businesses and individuals. Our skills and many years of experience allow us to offer comprehensive, team-oriented services. We recognize that trusts and estates matters touch the very core of our clients’ personal lives and the lives of their families, and we distinguish ourselves on the responsive, comprehensive, first-class service and value we provide our clients.

Please also be sure to consult the Stoll Keenon Ogden Coronavirus Resource webpage for additional articles and information related to the latest information on new laws and directives enacted by federal, state, and local governments in response to the Coronavirus pandemic.

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