Dec 9

IRS Updates Estate and Trust Tax Brackets, Exemptions & Rates

Jeffrey S. Goethe

The Internal Revenue Service announced the inflation adjustments for tax rates, brackets and exemptions in 2020 in a news release found here:

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020

A more detailed report can be found here:

https://www.irs.gov/pub/irs-drop/rp-19-44.pdf

Some of the highlights include:

  • Trust and estate income tax rates and brackets will continue to require close monitoring of trust and estate income and expenses to make sure deductions and income are coordinated to avoid hitting the highest income tax rates of 37% for income over $12,950.00 in  a year. An individual would have to make over $518,500 in taxable income to be taxed at 37%.
  • Trusts and estates pay capital gains taxes at a rate of 15% for gains between $2,600 and $13,150, and 20% on capital gains above $13,150.00. It continues to be important to obtain date of death values to support the step up in basis which will reduce the capital gains realized during the trust or estate administration.
  • The standard income tax deduction for
    • married individuals filing joint returns and surviving spouses – $24,800;
    • heads of households – $18,650; and
    • unmarried individuals or married individuals filing separately – $12,400.
  • The annual gift and generation skipping transfer tax annual deduction remains at $15,000 for total gifts to an individual each year.
  • The exemption for estate, gift and generation skipping transfer taxes has increased to $11,580.00 per individual.
  • For arrow shafts, the tax imposed under § 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows is $0.52 per shaft.

For estate planning purposes, it is important to remember that the current estate tax exemptions are set to expire in 2026 and the estate, gift and generation skipping transfer tax exemptions will return to $5.0 million plus inflation. Senator Sanders has filed the “For the 99.8% Act”, which would lower exemptions to and substantially raise the rates.

  • Estate value between $3.5 million and $10.0 million – 45%
  • Estate value between $10.0 million and – 50%
  • Estate value between $50.0 million and $1.0 billion – 55%
  • Estate value over $1.0 billion – 77%

This proposal, if passed, would dramatically increase the cost and complexity of estate planning. While the passage of the act seems unlikely under the current political circumstances, it reflects what some Democrats are thinking and might become reality if the political balance shifts as a result of the 2020 elections.