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Wealth Planning
It’s like déjà vu all over again: Navigating 2020 year-end planning
Stacey Delich-Gould
Senior Trust and Estate Specialist

Several years ago, the estate and gift tax exemption was scheduled to drop from $5 million to $1 million on New Year’s Eve. Many of us spent the months leading up to that scrambling to take advantage of the higher exemption before the clock turned. Our mad dash, which came at the end of 2012, ultimately turned out to be unnecessary, however, as subsequent legislation retained the original exemption amount.


There’s a similarly eerie feeling of uncertainty today, as November’s election could bring vastly different tax policy. There’s no guarantee that the $10 million individual exemption (currently $11.58 million, indexed for inflation) will be available in 2021. And it’s unclear if income and capital gains tax rates will stay at their current historic lows. Though our advice generally remains the same — stay the course and keep in regular contact with your Private Wealth Advisor — here are some year-end planning strategies with a 2020 twist.


Tax planning strategies might need to adapt to potential changes.


The usual procedure is to defer income and capital gains as long as possible and accelerate deductions (typically, donations made to charity) into the current tax year. However, as the sidebar on the next page illustrates, the election could usher in an era of increased tax rates. Even without a power shift in Washington, the costs of the ongoing pandemic could pressure the government to raise taxes. Here are strategies to consider:

  • If you have exposure to a concentrated single stock position with a built-in capital gain, now may be the time to consider diversifying.
  • If you have assets in a traditional IRA, consider converting to a Roth IRA in 2020. The income tax due on the conversion will be assessed at current rates, and the assets remaining in the Roth can grow tax-free. Remember that after you die assets in your Roth can be accessed by your heirs without income tax consequences. 
  • Consider deferring gifts to charity to a future tax year to put off deductions to a time when tax rates may be higher.

Consider your gift and estate needs.


Once you’ve taken stock of possible income tax planning options, consider whether now is the time to take advantage of the historically high estate and gift tax exemption, which is $11.58 million for 2020. Under current law, that amount is scheduled to be reduced in 2026 to $5 million (indexed for inflation), and the Biden platform proposes to return the estate and gift tax exemption to “historic norms.” It’s impossible to precisely gauge what that means, but the accompanying chart shows the wide range in the estate tax exemption over the last two decades.

  • 2000-2001: $675,000
  • 2002-2003: $1 million
  • 2004-2005: $1.5 million
  • 2006-2008: $2 million
  • 2009: $3.5 million
  • 2010: $5 million or $0 (for estates electing carryover basis)
  • 2011—2017: $5 million (indexed for inflation)
  • 2018—present: $10 million (indexed for inflation)

As you can see, the current exemption is more an outlier than the norm. If you have determined with your Private Wealth Advisor that you have the financial capacity to do so, consider using as much of the available $11.58 million exemption as possible. Treasury regulations finalized in 2019 ensure that gifts made using your exemption in the year of transfer cannot be “clawed back” later if the exemption decreases. This guidance also makes clear that the exemption is use-it-or-lose-it — if you gift $5 million and the exemption later decreases to $5 million, you have no remaining exemption and the additional exemption is lost.


Don’t overlook some classic tax tools.


Not everything is different in 2020. Don’t forget these tried-and-true year-end planning strategies.

  • Make your “annual exclusion” gifts. The annual exclusion ($15,000/individual or $30,000/married couple) is the maximum amount you can give to an individual in a year without eating into your exemption amount. You can make annual exclusion gifts to as many people as you like.
  • Pay any medical or tuition bills on behalf of loved ones directly to the provider. Like annual exclusion gifts, these gifts do not count against your exclusion amount.
  • Consider “front-loading” 529 school savings plans. You can put up to five years’ worth of annual exclusion gifts into a 529 — currently up to $75,000 for an individual or $150,000 for a couple (per child).
  • Consider whether larger gifts and more sophisticated strategies make sense for your situation.

Your Private Wealth Advisor can discuss the pros and cons of each strategy, and our Wealth Advisory Group can model different scenarios and evaluate the likely financial impact to you. This material does not constitute legal or tax advice, and you should consult your tax and legal advisors before engaging in any tax or estate planning strategy.


A glance at Joe Biden’s tax proposals


Democratic presidential nominee Joe Biden has proposed a variety of tax changes. His ideas are in draft form, with key details still to come, and may not be enacted even if Biden is elected. Nonetheless, here’s a quick summary of his plan at this point:


Individual income taxes

  • Increase top marginal tax rate from 37% to 39.6% for taxpayers with income of more than $400,000.

Capital gains tax rates

  • Apply ordinary income tax rates (39.6%) to long-term capital gains and qualified dividends for taxpayers with income of more than $1 million.

Estate taxes

  • Eliminate step-up in basis upon death, although it’s unclear if the original basis would carry over or if capital gains would be taxed at death.
  • Potentially return the estate tax to a “historical norm.” This could include restoring the lifetime exclusion to a lower amount or implementing a higher wealth transfer tax rate.

Itemized deductions

  • Limit the value of itemized deductions to a rate of 28%.
  • Restoration of the Pease Limitation for those with income above $400,000. This measure reduced the value of each dollar of itemized deductions by 3 cents for those with income exceeding a certain threshold.

Payroll taxes

  • Apply the Old Age, Survivors, and Disability Insurance (OASDI) tax of 12.4% — the employee and employer each pay half — to earnings above $400,000. The current earnings cap tax would remain at $137,700.

Business taxes

  • Phase out the Qualified Business Income (QBI) deduction for taxpayers with income above $400,000.
  • Raise the corporate tax rate from 21% currently to 28%.
  • Impose a 15% alternative minimum tax on corporations with book income of at least $100 million.


Stacey Delich-Gould is a senior trust and estate specialist for Capital Group Private Client Services, focusing on trust, estate, tax and personal planning. She is based in our New York office.


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