If you receive our firm’s newsletter then you are aware that the estate/gift lifetime exclusion may be decreasing substantially after the 2020 tax year. The current lifetime exclusion currently sits at around $11.6M per person, meaning that an individual can transfer up to $11.6M of assets over the individual’s lifetime, without paying any gift taxes (approximately $23.2M for a married couple).
With a change of legislative regime coming in 2021, there has been serious talk of the lifetime exclusion being decreased to $5M per person, quite a substantial decrease. The possibility exists that the decreased exclusion may happen as soon as for 2021, but, from what we are hearing, gifts made prior to the enactment of the decreased lifetime levels, will not be impacted. In other words, if an individual has transferred up to the current $11.6M’s worth of assets, let’s say by the end of 2020, then any new laws enacted to decrease the lifetime exclusion (after 2020) will not apply to those transfers made by the end of 2020.
So, it is imperative to consider whether gifting by the end of 2020 is appropriate for your individual situation and circumstances, to use up as much of your current lifetime exclusion as possible, or as appropriate for you and your family. Direct transfers to family members and transfers to trusts qualify for the use of your current lifetime exclusion.
Example: An individual has transferred $5M of assets over their lifetime as of today. The result is, that individual has currently approximately $6.6M of lifetime estate/gift exclusion remaining/available to be used by the end of 2020.
As a reminder, the first $15,000 of gifting per person on an annual basis is not applied to the use of the lifetime exclusion, called “the annual gift exclusion.” So, parents can transfer up to $60,000 per year to their child and the child’s spouse on an annual basis, without utilizing any part of the parents’ lifetime exclusions.