Act Now: A Year of Opportunity for Estate & Wealth Transfer Planning


The first half of 2020 has been a period of continued unknowns and volatility. It has made planning difficult, if not impossible. One exception is the clarity that exists for estate and wealth transfer planning. This year presents a historic opportunity to take advantage. With low interest rates and extraordinary transfer tax benefits available, now is the time to take action.


In light of 2020 being an election year and the need for additional tax revenues, the current estate tax laws are at risk. Below is a summary of the current estate tax unified credit (amount you can shelter from estate and gift taxes) as well as the applicable federal rates (AFR) that can be used for intrafamily loans:

  • The basic exclusion amount for determining the unified credit against the estate tax is $11,580,000 per person for calendar year 2020.

  • June 2020 AFR interest rates are 0.18% for loans up to 3 years, 0.43% for loans up to 9 years, and 1.01% for loans over 9 years.


To put 2020 in perspective, it is helpful to review how many times the estate tax laws have changed as priorities shifted and the need for revenues increased or diminished throughout our country’s history.


Since originally enacted in 1797:

  1. 1797 Estate Tax Enacted

  2. Repealed 1802

  3. Enacted 1862

  4. Repealed 1870

  5. Enacted 1898

  6. Repealed 1902

  7. Enacted 1916

  8. Reformed 1930s

  9. Reformed 1976 to 1993

  10. Reformed 2001

  11. Repealed 2010

  12. Enacted 2011

  13. Sunset 2013

  14. Permanent 2013

  15. Revised 2017


Are you overlooking this unique opportunity for planning?


Many clients believe they do not need an estate plan because their estate is below the current $11,580,000 per person exemption. There are often two critical components clients may be overlooking:


  • As we have outlined, the federal estate tax exemption is subject to change and will likely change. With the passing of the Tax Cuts and Jobs Act of 2017, the federal estate tax exemption doubled to $11,580,000 in 2020. This increase is temporary, though, and the exemption is scheduled to revert to an estimated $6.59 million in 2026 if nothing else changes.

  • The impact of state estate taxes and inheritance taxes. It is important to consider the impact of state estate taxes and inheritance taxes you might have on your wealth transfer plans. It may come as a surprise, but there are currently 17 states that impose an estate or inheritance tax. The state estate tax rates range from 0.08% to as high as 20%. This trend can continue in the future.


Some important questions to ask and answer: (1) How does this reality impact your estate and the ability to transfer, on a tax-favored basis, to your heirs? (2) What will the size of your estate look like in 10, 15 or 20+ years from today?


The Role of Life Insurance in Your Estate Plan


When properly arranged to pass estate tax-free, whether single life on the primary estate owner or survivorship life on both spouses’ lives, life insurance generates substantial liquidity to help execute an estate plan. Consider these perspectives:

  • Providing cash in a timely manner to pay estate, or other transfer, taxes without resorting to distressed sales of illiquid assets.

  • Keeping family wealth intact by offsetting any estate tax value erosion that still occurs, even after all lifetime tax-reduction gifting techniques have been employed.

  • Utilizing the income and estate tax-free policy proceeds in family business scenarios to create meaningful non-business inheritances for “inactive” heirs.


Act now to take advantage of this unique opportunity. We are here to help you develop a plan to leverage life insurance within your overall estate and wealth transfer plan.


Related: See "Making large gifts now won’t harm estates after 2025"



This information is provided for informational purposes only and should not be construed as legal or tax advice. You should discuss your circumstances with a financial professional before making any decisions. This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. https://www.trcfinancial.com/disclosure

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