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Every year brings with it potential changes to tax and trust laws both at the federal and state level. It is important to stay up-to-date on these changes and to adjust your retirement and estate planning strategies accordingly. One of the important tax and trust law changes for 2020 involves estate transfer taxes. Here’s what you should know.

Exemption Threshold

The exemption for federal gift, estate and generation skipping taxes has increased. The new limit for 2020 is $11.58 million per person ($23.16 million per married couple). The tax rate for any gifts beyond this limit is 40% (a flat rate). This new threshold is applicable through the year 2026, at which point it will drop back down to the prior rate of $5 million. Adjustments may be made for inflation. It’s also possible that further changes to the law will be made prior to 2026. 

Reasons to Increase Gifting Strategy

For many, this increased limit is an opportunity to increase gifting and avoid additional taxes. For instance, a gifted property (within the limits) may later increase in value. Recipients of the gift can avoid taxes on that appreciation. Thus, it can be beneficial to gift early. However, it’s also not without precautions.

Gifting Considerations

Gifting property and other assets early does have a downside. You would no longer have access to or control of said assets, should you need to liquidate them for retirement or other unexpected needs. Other estate planning techniques may be better suited to offset some of these risks.

Adjusting Estate Planning Strategies Based on Tax and Trust Law Changes for 2020

Before adjusting any of your estate planning strategies, such as gifting, it is essential that you speak with an estate planning attorney. This is the best way to understand the pros and cons,… and to discuss other alternatives that may be best suited to achieve your goals. Your personal finances and circumstances are unique, so application of any tax law changes are as well. Schedule a consultation with our team to review and optimize your estate plan.

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