Skip to content

Where this often-debated tax stands for 2020, and how to plan for the future.

The Estate Tax: Unpacking the Current State of Play

Now that a few years have passed since the enactment of the Tax Cuts and Jobs Act in 2017, we have had time to contemplate the tax code changes it brought, particularly concerning both individual and corporate tax issues. As the November presidential election gets closer, many of us may also be considering the policy differences between the candidates and the effect those policies will have on our particular situations, if enacted. Although much attention is always been given to both individual and corporate tax provisions, people often forget that the Estate and Gift Tax still exists and that both candidates plan to keep a version of it alive.

Even though the process that led to the passage of the Tax Cuts and Jobs Act was one in which proposals were put forth to repeal the Estate and Gift Tax, the tax ultimately survived in much the same form as it existed before the legislative change. These provisions of the Internal Revenue Code continue to impose a significant tax on the transfer away of an individual’s property either during life or at death to someone other than a spouse or to charity. The primary exception to the tax is known as the applicable exclusion amount (i.e. the amount that can pass free of tax to a non-spouse or non-charity during life or at death). This amount is $11.58 million for 2020 and continues to be indexed for inflation.  Since the portability provisions for spouses survived the 2017 tax code changes, the combined amount that can be used to shelter a married couple’s assets from taxation is now $23.16 million without any significant planning. For transfers over that amount, the Estate and Gift Tax rate is a flat 40%.

This threshold should eliminate Estate and Gift Tax issues for everyone except the wealthiest Americans.  According to the Federal Reserve Survey of Consumer Finance for 2017, the household wealth for the top one percent of American’s is $10.37 million while the top one-half percent is $16.12 million. Even families with these levels of wealth should be able to escape taxation under the new tax provisions. As such, it is anticipated that less than 0.2% of all estates will be subject to tax under the current Estate and Gift Tax structure. However, if a closely held business owners is contemplating a succession plan that involves the transferring away of all or part of their interest either during life or at death, they must contemplate the effect of the Estate and Gift Tax on this transfer because their business will be value at its highest and best use for purposes of calculating the tax. And, owners may often be surprised at the significant value placed on the business or their interest in it during this process.

Moreover, in an effort to minimize estate and gift planning strategies, the Obama administration in 2016 proposed regulations under Internal Revenue Code Section 2704 to limit the applicability of valuation discounts when valuing closely held businesses.  These discounts are typically used to retard the value of an individual business interest for Estate and Gift Tax purposes and were targeted at the transfer of interests in closely held businesses.  By curbing the use of valuation discounts in these situations, the administration sought to raise the value of closely held business interests for Estate and Gift Tax purposes, thereby increasing the taxes due on the death of or gifting by an owner.  As part of the current administration’s initiative to reduce regulations, the Treasury Department issued a final report in October 2017 in which it reiterated its intent to withdraw these proposed regulations because they were considered harmful to small businesses.  As such, the use of valuation discounts for intra-family business transfers continues to be an applicable planning tool, but this may change under a new administration.

Like so much of the tax law, the rules governing the Estate and Gift Tax continue to evolve. Many people may recall a time when far less wealth could be shielded from the tax and widespread public concerns over it. They may also recall the journey the Estate and Gift Tax has taken since its proposed repeal in the Economic Growth and Tax Relief Reconciliation Act of 2001; its journey over the fiscal cliff; its return and significant revisions in the American Taxpayer Relief Act of 2012; and its survival in the Tax Cuts and Jobs Act in 2017. The Estate and Gift Tax continues to hold its place the Internal Revenue Code to be a topic of consideration for business owners. But, as always, they will have to address the ever-present changes.


Grab a complimentary copy of Are you paying too much in retirement taxes below:

Are You Paying Too Much in Taxes in Retirement?

Gregory Ricks & Associates is an independent financial advisory firm that specializes in creating custom financial plans to best suit you in retirement.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Gregory Ricks & Associates are not affiliated companies.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. None of the information contained on this website shall constitute an offer to sell or solicit any offer to buy a security or any insurance product.

Any references to protection benefits, safety, security,  or steady and reliable income streams on this website refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured.

The information and opinions contained in any of the material requested from this website are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation.

Neither the firm nor its agents or representatives may give tax or legal advice.  Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

Any media logos and/or trademarks contained herein are the property of their respective owners and no endorsement by those owners of Gregory Ricks & Associates is stated or implied.

Gregory Ricks & Associates has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. AEWM, Gregory Ricks & Associates, WJ Blanchard Law, LLC, J Heath & Co. and Mortgage Gumbo are not affiliated companies.

The firm is not affiliated with the US government or any governmental agency.


Call Now Button