By Stanley M. Vasiliadis, Esquire, CELA
Here are some important inflation adjustments for 2020:
Federal Estate & Gift Tax Lifetime Exclusion Amount. For persons who die or make taxable gifts in 2020, there is a lifetime exclusion of $11,580,000 — $11.58 million. With proper planning, a married couple can combine their exclusions and pass on to the next generation up to $23.16 million free of federal estate tax, less any taxable gifts made during their lifetimes. In 2020, as in 2019, “taxable gifts” are gifts that exceed $15,000 per person. CAUTION: Effective January 1, 2026, the lifetime exclusion amounts will revert back to the levels available under the law in existence prior to the Tax Cuts and Jobs Act, which went into effect last year. These exclusions will be cut in half. But there’s some recent good news in that regard: There will be no “claw-back” of gifts made prior to expiration of the Act that exceed the reduced amount of the allowable comparable gift tax exclusion.
Standard Deduction. Married couples filing a joint federal income tax return will have a $24,800 standard deduction.
Trusts & Estates and “Kiddie Tax”. Income tax rates for trusts and estates and for the kiddie tax will be 10% for income not over $2,600; 24% for income over $2,600 but not over $9,450; 35% for income over $9,450 but not over $12,950; and at the maximum tax rate of 37% for income over $12,950. NOTE: properly drafted Medicaid Asset Protection Trusts are not taxed at these compressed rates because they are classified as “grantor” trusts under the Internal Revenue Code. Income from grantor trusts passes through to the settlors who created and funded the trusts and is taxed on their personal income tax returns, typically resulting in substantially lower federal income taxes.
Contact Vasiliadis Pappas Associates to learn more about inflation adjustments options and other measures to protect yourself.