Estate Planing

Wealth transfer planning


Under the TCJA, the applicable exclusion amount (or AEA, the amount that can be left to others by gift or bequest without incurring a gift or estate tax) was increased from $5 million to $10 million, indexed for inflation. In 2020, the AEA amount is $11.58 million. The TCJA states that the increased $10 million exclusion will only be in place until the end of 2025 (although political exigencies may give rise to an earlier sunset). When it will revert to the previous $5 million limit indexed for inflation. Under current law, the increased AEA is a “use it or lose it” proposition. Once it sunsets, it will be as if it had never existed.

Therefore, if an individual has any unused AEA, they should consider using it in 2020 or soon thereafter. Having resolved to make a gift, the questions then turn to what the gift should be and how the gift should be made. A transfer could be as simple as gifting cash or marketable securities, but it could also involve other types of investments. Additionally, a gift can be outright to the donee or indirect through use of a trust.