Type: Law Bulletins
Date: 10/29/2020

2020 Year-End Estate and Tax Planning Opportunities

The impending Nov. 3 presidential election and its potential outcomes may result in significant tax law changes in 2021. Taxpayers should review their current tax and estate planning positions and consider pursuing certain planning opportunities before Dec. 31, 2020.

The following table is intended to be a brief summary and snapshot of certain current tax laws, the presidential candidates’ (Donald Trump and Joe Biden) proposed tax plans, and related potential year-end tax and estate planning opportunities.

Note an individual assessment and analysis will be required to determine whether a particular planning opportunity is appropriate for your situation. Please contact Sonya Jindal Tork or any member of Taft’s Tax or Private Client practices for additional guidance and recommendations.

For a mobile and printer-friendly version of the below chart, click here.

  Current Law Donald Trump Proposal Joe Biden Proposal Potential Planning Opportunities
Individual Tax Rates Federal income tax brackets ranging from 10% – 37%. No changes proposed, but considering 10% tax rate cut for the middle class. effectively lowering the 22% rate to 15%. Maintain current brackets, but increase top bracket to 39.6% for taxpayers with taxable income over $400,000.

Accelerate income into 2020.

Convert Traditional IRA to Roth IRA to avoid tax on converted assets and appreciation on such assets.

Capital Gains and Dividends

Current capital gains rates*:
$0 – $40,000 = 0%
$40,001 – $441,450 = 15%
$441,451+ = 20%

*Rates above do not include 3.8% net investment income tax.

No changes proposed, but considering cutting the maximum capital gains rate to 15%. For taxpayers with income over $1 million, capital gains and qualified dividends subject to ordinary income tax rates (39.6%).

Realize long-term capital gains to lock in current rates.

Reinvest capital gains proceeds in qualified opportunity zone funds before rules potentially reformed.

Defer selling stocks and recognizing losses to future tax years when capital gains may be taxed at a proposed higher rate.

Corporate Tax Rates

21% corporate tax rate.

No changes proposed. 28% corporate tax rate plus 15% corporate alternative minimum tax on net earnings in excess of $100 million.

Accelerate income into 2020.

Defer deductions until after tax increases enacted.

Accelerate sales of companies.

Payroll Taxes

12.4% Social Security tax on income up to $137,000 for 2020 (adjusted yearly for inflation) with 6.2% paid by the employer and 6.2% paid by the employee, unless self-employed.

For Sept. 1, 2020-Dec. 31, 2020, withholding, deposit, and payment of employee’s 6.2% share of Social Security tax is deferred for individuals earning up to $104,000. 12.4% Social Security tax on individual earnings over $400,000. Creates a “donut hole” in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed.

Accelerate income into 2020.

Itemized Deductions

No cap on itemized deduction benefit.

$10,000 cap on state and local tax (SALT) deduction.

Interest paid on home mortgage limited to $750,000 of acquisition indebtedness (unless loan existing on or before Dec. 15, 2017)

Charitable contribution limitation generally 60% of adjusted gross income (AGI) modified by CARES Act:

  • Cash (100% public charities, 60% donor advised funds/supporting organizations, 30% private foundations)
  • Long-term appreciated publicly traded securities (30% public charities, 30% donor advised funds/supporting organizations, 20% private foundations).

Miscellaneous deductions subject to 2% floor suspended.

No changes proposed.

Itemized deduction cap of 28% for taxpayers with taxable income over $400,000.

Eliminate current $10,000 SALT deduction cap.

Accelerate itemized deductions into a tax year where limitation is not yet implemented.

Consider multi-year bunching strategies.

Consider charitable deduction planning strategies.

Qualified Business Income (QBI) Deduction

20% QBI deduction, subject to limitations and phase-outs.

No changes proposed. Keep QBI deduction, but phase out for taxpayers with taxable income over $400,000 and repeal certain rules for real estate.

Consult a tax advisor to plan for any potential changes to QBI deduction rules.

Estate, Gift, and Generation-Skipping Transfer Taxes

$11.58 million exemption per person scheduled to sunset at the end of 2025.

No changes proposed. Reduce gift tax exemption to $1 million and estate and GST exemption to $3.5 million.

Gift appreciated assets now to utilize remaining exemptions (see examples below).

Review estate plan to confirm any formula clauses work in light of potential decreases to exemption and plan provides flexibility in light of any potential tax law changes.

Taxable Estates

Rates ranging from 18% to 40%. Rate for estates over $1 million is 40% plus $345,800.

No changes proposed. Increase top rate for estate tax to 45%.

Implement techniques to reduce taxable estate (see examples below).

Basis Step-Up

Currently, basis of assets passed on to beneficiaries at death is increased to the fair market value of the asset as of the death of the deceased.

No changes proposed. Eliminate basis-step up and capital gains subject to tax at death.

Use spousal lifetime access trusts (SLATs) to reduce impact of elimination of basis step-up while utilizing exemption and providing flexibility by allowing grantor’s spouse access to funds, if needed.

Create and fund private foundation with qualified appreciated stock with low basis.

Current Environment

The current environment, which has been accompanied by the COVID-19 pandemic, depressed asset values, volatile markets, and historically low interest rates, presents additional traditional and unique planning opportunities to consider.


Implement an estate plan to make sure affairs are in order.

Review current estate plan to make sure current plan aligns with goals and potential tax law changes.

Consider estate planning opportunities with interest rate based vehicles (e.g., sales to intentionally defective irrevocable trusts (IDGTs), intra-family loans (new or refinanced), establishing grantor retained annuity trusts (GRATs), or charitable lead annuity trusts (CLATs)).

Transfer assets that have declined in value (e.g., use annual gift tax exclusion, transfer interests in a family limited partnership (FLP) or LLC at a discount as a result of lack of control and/or marketability of asset).

Convert Traditional IRA to Roth IRA to avoid tax on converted assets and appreciation on such assets.

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