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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Our new constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”  Benjamin Franklin’s letter to Jean-Baptiste Leroy, 1789.

For many of us, the end of the calendar year could not come soon enough.  Between the social unrest, political turmoil, the COVID-19 pandemic, and the economic and societal upheaval created thereby, few of us will shed any tears for the end of the 2020 calendar year. Looking ahead, many clients and fellow advisors lament the lack of certainty surrounding government institutions, the future of tax laws, and perhaps the economic outlook.

In this time of uncertainty, I encourage our clients to make decisions based upon the certainties of life, decisions based upon their faith, their love for their families, and their charitable endeavors. Over this past year, I have been honored to help some clients make significant lifetime gifts.  Some clients have helped with an adult child’s unexpected living expense costs, other clients with educational costs of their grandchildren, and other clients with the establishment of charitable strategies. While tax law changes might impact the tax efficacy of such lifetime gifting decisions, I am certain that none of the clients that I assisted this past year with significant gifting matters will regret their gifting decisions, given that these decisions were ultimately driven by non-tax considerations.

Keeping in mind that tax rules are likely to change in the coming years, we should plan on the following tax rules going into 2021:

  • Federal Unified Credit. The federal “unified credit” for federal gift and estate tax purposes will increase to $11.70 million in 2021, up from $11.58 million in 2020. As I previously summarized, President-Elect Biden had campaigned to reduce the federal exemption to $3.5 million per person.
  • Annual Exclusion Gift Amount. The federal annual exclusion gift amount stays at the same amount as it was for the past few years. That means that gifts of $15,000 per beneficiary per year will not be considered “taxable gifts” for federal and state estate tax purposes.
  • Minnesota Estate and Gift Tax Amounts. The Minnesota estate tax exemption remains the same at $3.0 million per person.  Minnesota residents should be advised that while there is no Minnesota gift tax, gifts made within three years of death are included in the “taxable estate” for Minnesota estate tax purposes. Minnesota residents should also keep in mind that the Minnesota estate tax exemption is not automatically portable to the surviving spouse after the first spouse’s death.
  • Minimum Intra-Family Interest Rates and Rates of Return. Based upon current minimum interest rates set by the IRS, family members can make loans to one another for free (well, almost free).  For example, for intra-family loans made in December, the short-term interest rate on “short-term” loans (i.e., loans less than 3 years) is only 0.15%.  Relatedly, the assumed rate of return set by the IRS for assets contributed to a Grantor Retained Annuity Trust is only 0.60%.   The law interest rate and low assumed rate of return makes it far easier to transfer wealth to the next generation.

Ben Franklin was right—death and taxes will be with us indefinitely.  But he was wrong if he was serious in suggesting that that this was the limit of our known certainties.  As we close the end of this tough calendar year, we should focus not on factors outside our control, and over which we have no certainty, but on those matters of which we are certain.  For those of us who are professing Christians, Christmas marks an annual reminder of how God took the form of a man in Jesus Christ, Immanuel (literally “God with us”), in order that we might know God and live with Him in peace, now and forever.  Regardless of the nature of your hope, I trust that you can make decisions based not on any ephemeral economic, societal or personal financial circumstances, but on that which is lasting joy for you and your family.