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Taxes Are Complicated, Expensive and Getting Worse!

Mike Phone

By Mike Hoffman, Esq., CPA

We all know that as a result of the 2020 elections, taxes are not only going to change, but are going up.  Focusing on estate planning, the landscape is downright scary.  First, there are a number of proposals which increase the effective estate tax rate from its current level of 40% to a graduated scale that starts at 45% and peaks at 65%.  The basic exclusion amount would be reduced from $11.7 million to $3.5 million, no longer indexed.  The gift tax exemption (representing what you can use during life) would be reduced to $1 million, not indexed for inflation.

If the surviving spouse or single person dies with a $10 million estate in 2021, there is no estate tax.  If that same person dies next year, his or her heirs will be responsible for $2.925 million of estate taxes.

Proposals attack the basic tool of grantor trusts, and suggest that assets held in grantor trusts would become taxable at the grantor’s death and includable in the grantor’s taxable estate.  This suggests that 2021 will contain a flurry of activity for taxpayers setting up GRATs, DGTs, SLATs, Inheritor’s Trusts and numerous other grantor trust tools in hopes to be grandfathered from any effective tax law change in this area.

Proposals to eliminate minority interest discounts and lack of control discounts would have a huge effect on the valuation process that is employed for gifting purposes.  Proposals also want to limit the ability to take any sort of discounts on non-business assets (e.g., securities).

Use of Grantor Retained Annuity Trusts (GRATs) would be severely limited under the new proposals.  Grantor trusts in general could no longer participate in installment sale transactions, effective for estate planning purposes.   In other words, this historically used “freezing” technique would be all but lost.

For those trusts that are not grandfathered, trusts could no longer exist for longer than 50 years for estate planning purposes.  It wasn’t too long ago that we finally increased Georgia’s rule against perpetuities to a statutory 360 years, representing more than ten generations of trusts that could provide structure for estate plans.  The benefits of that structure, which include asset protection and the avoidance of death tax for that period of time, would only apply to trusts in existence prior to the effective date of this proposed legislation.

There are proposals to reduce and limit the annual gift exclusion, reducing the annual gift exclusion from $15,000 per donee to $10,000 per donee, with a limit of $30,000 per year per donor.

Perhaps one of the most egregious proposals is to eliminate the stepped-up basis at death that American taxpayers have enjoyed forever.  Of course, that would mean that not only do estates incur a sizable estate tax of 45% to 65%, but a subsequent sale of those assets would incur an income tax on the gain, as well.

Needless to say, taxpayers who have postponed their planning until they saw the results of the 2020 election have been disappointed, which is nothing compared to the disappointment that they and future generations of their family might experience if they don’t act soon.


For more information regarding estate planning, please contact us at 404-255-7400 or send an email to info@hoffmanestatelaw.com.


  • Mike Hoffman

    Mike is the founding and managing partner of Hoffman & Associates and oversees the general operations and personnel of the firm. He works primarily in the estate planning practice helping clients minimize the effect of the estate tax, ensure orderly transition of generations in family businesses, and maximize asset protections. Mike also devotes a considerable amount of his efforts to the business law and tax planning needs of the firm’s clients. He is licensed to practice in the States of Georgia, Ohio, and Tennessee, and is a Certified Public Accountant.

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