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April 21, 2020

3 Reasons Why Now Is the Time to Rethink Estate Planning

Person looking at estate planning in 2020.

Even before the COVID-19 pandemic upended everyone’s plans for the year, 2020 looked like a good time to revisit estate plans. A federal election on the horizon brings the potential to change some of the estate tax reforms made by the law commonly known as the Tax Cuts and Job Acts (TCJA).

The disruption caused by the coronavirus makes now a good time to revisit estate plans for other reasons. Market volatility has suppressed the values of financial and real estate assets, which means transferring those assets might be more advantageous in the current uncertain environment. This unique combination of events presents some reasons why adjusting your estate planning in 2020 may be more pressing than ever.

1. Valuation Changes

The market swings and economic shifts during the COVID-19 pandemic have temporarily lowered the value of many business and real estate assets. While the long-term economic effects remain to be seen, it is clear that financial markets and business values are depressed today. This makes estate planning especially timely for individuals with real estate holdings and those who own closely held businesses. The levels of business uncertainty may mean that transferring business interests now may allow for larger discounts for lack of marketability and minority interests.

Conversely, if you are concerned about preserving the value in your estate you may want to work with a valuation provider to determine whether you can use an alternative valuation date for your Form 706 Estate and Generation-Skipping Transfer Tax Return. This may help you minimize any potential tax exposures and protect your current asset values.

2. The 2020 Election

The TCJA nearly doubled the thresholds for estate tax and gifting limitations when it went into effect in 2018. For 2020, the federal lifetime exemption is set at $11.58 million per person.  Individuals can also make gifts of $15,000 per person ($30,000 if married and choose to split gifts). Keep in mind, however, that certain states also have an estate or inheritance tax, including Massachusetts, Illinois, New York, and Rhode Island.

While the TCJA’s expansion of the gift and estate tax threshold and annual giving limitations aren’t set to expire until 2025, some speculate that a shake-up in Washington this November could lead to earlier changes to threshold. The estate tax reform additions to the TCJA were particularly unpopular among Democratic Congressional members when they were rolled out, and reversing estate tax components may be on a short to-do list, particularly if Democrats make inroads in the Senate or take control of the White House. A bill introduced in the House of Representatives last fall, for example, proposed lowering the estate tax threshold to $3.5 million

If you’re planning to take advantage of current exemption thresholds by gifting directly to your beneficiaries, now is the time to start thinking seriously about making gifts. The depressed values of the assets may be able to help you transfer more assets now without the risk of incurring estate or generation-skipping transfer (GST) taxes.

It’s worth noting that gifts given directly to beneficiaries may be included as part of beneficiaries’ estates. Gifts can be structured to avoid future estate or GST taxes by using trusts. Grantor retained annuity trusts (GRATs), for example, allow gifted assets to remain separate from beneficiaries’ estate. These irrevocable trusts are established for a set amount of time and permit wealth transfer while reducing any associated gift or estate tax liabilities. Another alternative would be a sale to defective grantor trust, where the grantor still includes the gifted assets as part of his or her income tax liabilities but can minimize the impact of estate and gift taxes on those gifted assets.

3. Charitable Giving Changes

The Coronavirus Aid, Relief, and Economic Security (CARES) Act makes charitable giving even more favorable for estate planning. For 2020, it changes the deductibility of charitable contributions for individuals who don’t itemize their federal tax returns. Individuals can take a new $300 above-the-line deduction for cash contributions to a qualifying charity. It also allows charitable deductions to individuals who do itemize their federal taxes. Cash contributions to qualifying charities are 100% deductible up to the taxpayer’s AGI. The C corporation income tax charitable deduction increased from 10 to 25% of the corporation's taxable income. The CARES Act also increases the deduction limit for contributions of food inventory from 15% to 25%.

Guidance around the CARES Act provisions continues to be clarified, so it’s a good time to work with your tax advisor to optimize your gift planning under the latest provisions.

Trusted Advisors Are Here to Help

At CBIZ, we’re closely following the economic and financial issues faced by our clients during the COVID-19 pandemic. Visit the COVID-19 Resource Center for a full suite of updated news, webinars, and resources to help your business during this time.

If you’re looking for guidance and advice about how to better plan your estate in 2020, we’re here to support you. Contact us to get started.

Managing Liquidity


Copyright © 2020, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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