2020 Planning Strategies

Monday, August 31, 2020 |

As we approach the final quarter of 2020, tax planning strategies will become top of mind. This is especially true in an election year where each party has differing tax law positions.

We want to highlight a few potential changes that should be considered:

  1. Possible changes to the estate tax exemption of $11.58 million per person. If elected, Joe Biden has pledged to return this historically high exemption amount back to “previous levels” which we estimate could be approximately $5.5m per person (the level before the TCJA of 2017).
    1.  A potential estate planning strategy for families who are financially able would be to have one spouse give a significant amount while the exemption is $11.58m per person, thus hedging in the event the exemption is reduced.
    2.  As we remain in a low interest rate environment, IDGT’s and GRAT’s remain as a favorable estate planning strategy. We discussed this strategy in a previous Blog Post from 2019. For reference, the current 7520 rate is at an all-time low of .4%. Down from 2.0% at the writing of the last blog post in October 2019. The 7520 rate impacts how future assets are valued for transfer purposes. A lower percent means a lower “hurdle rate” with reference to the amount which remains for beneficiaries after annual distributions from these trusts.
  2. We anticipate higher marginal income tax rates if Joe Biden wins the Presidency: especially if there is a change in majority in the senate. It is projected that we could see a return to a top marginal tax bracket of 39.7% (up from 37% currently).
  3. There is also expected to be an increase in the Social Security tax threshold for incomes above $400,000.

With respect to #2 and #3 above, taxpayers may want to consider 2020 tax brackets against their prospective income and potential changes in tax brackets for 2021. While predicting tax policy is a bit like predicting the weather, it’s important to consider possible changes that could impact our clients’ financial plan.

As we continue to navigate our new normal during COVID-19, and with over 177,000 COVID-19 related deaths in the United States, it may now be as important as ever to re-visit estate plans. Instruments such as end of life directives and/or Powers of Attorney are often overlooked or out of date.

The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. You should discuss any legal, tax or financial matters with the appropriate professional.