Tag Archives: generation skipping transfer tax

IRS Extends Postponement of Deadline for Gift and Generation-Skipping Transfer Tax Filing and Payment, But Maintains Estate Tax Deadlines

On March 13, 2020, the President issued an emergency declaration instructing the Secretary of Treasury to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency (defined as “Affected Taxpayers”).

On March 27, 2020, the IRS issued an advanced notice of Notice 2020-20 which provides additional relief from Notice 2020-18 to taxpayers who have United States Gift and Generation-Skipping Transfer Tax Returns (Form 709) and payments due on April 15, 2020 by including such taxpayers in the definition of Affected Taxpayer. The April 15, 2020 deadline is postponed to July 15, 2020. The three-month relief provided under Notice 2020-20 to an Affected Taxpayer is automatic, and therefore, there is no requirement to file an Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift Generation-Skipping Transfer Tax (Form 8892) to obtain the benefit of the filing and payment postponement deadline of July 15, 2020. However, the Affected Taxpayer must file a Form 8892 by July 15, 2020 to obtain an extension to file Form 709 until October 15, 2020. Nevertheless, any Federal gift and generation-skipping transfer tax payments will still be due on July 15, 2020.

Accordingly, the period beginning on April 15, 2020 and ending on July 15, 2020 will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file a Form 709 or to pay Federal gift and generation-skipping transfer taxes shown on the respective Form 709. Interest, penalties, and additions to tax with respect to such postponed Form 709 and payments will begin to accrue on July 16, 2020.

Please note that neither Notice 2020-18 nor Notice 2020-20 postponed the due date for filing United States Estate (and Generation-Skipping Transfer) Tax Returns (Form 706).

Alyssa L. Shook
ashook@williamsparker.com
(941) 536-2029

For additional updates related to COVID-19, please visit our resources page

Tax Cuts and Job Act – Estate Planning Update

The Tax Cuts and Jobs Act, with a clear emphasis on job creation, introduced major tax changes for businesses. However, it also included a doubling of the exemption amount for federal estate, gift, and generation-skipping transfer tax purposes. With the increased exemption expected to sunset on December 31, 2025, or earlier, now is the time for persons with taxable estates to consider how best to use and lock-in the increased exemption. For those persons safely under the current and prior exemption, care needs to be taken that their current documents do not result in a misallocation of assets where such allocation is tied to the exemption amount.

A recent presentation given to the FICPA explores these issues as well as other changes that may affect estate planning and administration.

Daniel L. Tullidge
dtullidge@williamsparker.com
(941) 329-6627

Planning to Live Beyond 2025? How You Can Still Enjoy Estate Tax Reform’s Sunset Special

The just-enacted Tax Cuts and Jobs Act doubles the federal estate, gift, and generation-skipping transfer lifetime tax exemptions through 2025. The exemptions revert to their pre-Act levels on January 1, 2026. Ignoring inflation adjustments, the combined exemptions for a married couple will then fall from over $22 million to $11 million. At the 40% Federal transfer tax rate, a 2026 sunset will increase a married couple’s estate tax by $4.4 million.

Do you want to avoid $4.4 million of estate tax, even if you plan to celebrate the 2026 New Year amongst the living?

A married couple can permanently harvest the increased exemptions by gifting assets with value up to the full $22 million exemption amount before 2026. If you gift into a generation-skipping trust, the exempted assets can pass through many generations free of transfer tax. With valuation discounts for lack of control and lack of marketability still fully available, family business assets are particularly attractive for gifting.

A taxpayer can not use the increased exemption until he or she first make gifts exhausting his or her pre-Act exemption. An individual does not create an additional tax benefit until he or she first gifts about $5.5 million worth of property. A couple does not capture the full additional benefit until they give away property worth over $22 million.

These ordering rules create an obstacle for many, who can not afford to give away that much property. Married taxpayers in that situation may consider funding “Spousal Lifetime Access Trusts.” Each spouse gifts assets to a trust for the other spouse, leaving the gifted assets available to the beneficiary spouse for his or her lifetime. When the beneficiary spouse dies, the remaining trust assets pass to children or other beneficiaries free of estate tax. Persons who created such trusts shortly before 2013, when another legislative sunset almost reduced the lifetime exemptions, can fund their existing trusts with additional gifts.

Many families will wait until 2026 is closer before taking action. Families with sufficient wealth to afford substantial gifting, who also expect estate tax liability even with the increased exemptions, should consider gifting sooner, to remove appreciation in the gifted assets before 2026 from their future taxable estates.

For more information regarding the Tax Cuts and Jobs Act, follow these links:

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037