Estate and Gift Tax Update - January 2020

Happy New Year! Please let us share some recent estate planning developments to help you gain 2020 vision.



Increases to the Basic Exclusion Amount for 2020

The IRS recently announced the 2020 inflation adjustments for various tax items, including increases in the federal estate and gift tax exclusion. For 2020, the estate and gift tax basic exclusion amount is $11.58 million. This means that an individual can transfer up to $11.58 million during life or at death, free of federal estate and/or gift taxes. 


In addition, Connecticut and New York have also increased their basic exclusion amounts. For Connecticut, the estate and gift tax exclusion increases in 2020 from $3.6 million to $5.1 million, as part of recent legislation gradually increasing the Connecticut exemption to match federal levels. In New York, the basic exclusion amount increases in 2020 to $5.85 million


Annual Gift Tax Exclusion Remains the Same

The annual gift tax exclusion, which is periodically adjusted for inflation, will remain at $15,000 in 2020. An individual may gift up to $15,000 per person (or $30,000 if married) this year without using up any basic exclusion amount. Note that married couples who make joint gifts may still need to file a Gift Tax Return, even if no tax is due.


New Distribution Rules for Retirement Accounts

As part of the budget bill signed into law last month, the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”), which took effect on January 1, 2020, made significant changes to the minimum distribution rules for IRAs and 401(k) accounts.


Elimination of Stretch IRAs

Perhaps the most significant impact on estate planning is the SECURE Act’s elimination of so-called “stretch” IRAs. The stretch IRA permitted children, grandchildren and other non-spouse beneficiaries to take minimum distributions from inherited retirement accounts over their lifetimes, based on their age and life expectancy. This typically allowed the beneficiaries to enjoy the tax-deferred treatment of the retirement accounts over a long period of time. 


The SECURE Act unfortunately eliminates this strategy for account owners dying after December 31, 2019. While the new law no longer imposes an annual required minimum distribution for beneficiaries of inherited retirement accounts, the entire account balance must be distributed to a non-spouse beneficiary within ten (10) years following the account owner’s death. For some, particularly younger beneficiaries, this could have a significant tax consequence. This 10-year rule applies to traditional IRAs and 401(k) accounts, as well as to Roth IRAs. 


There is an exception to the 10-year rule carved out for certain “eligible” designated beneficiaries. A surviving spouse can continue to take distributions over his or her life expectancy. In addition, minor children of the account owner, disabled and chronically ill beneficiaries, and beneficiaries less than ten (10) years younger than the account owner are not subject to the 10-year rule. However, in the case of minor children, the 10-year rule kicks in once the child reaches the age of majority. For other beneficiaries exempt from the 10-year rule, once they die, subsequent beneficiaries will still be subject to the rule.


Increase in the Age for Beginning Required Minimum Distributions

One welcome piece of news is the increase in the age at which a person needs to begin taking required minimum distributions from his or her retirement account. Previously, participants in a traditional retirement plan were required to begin withdrawing from their accounts when they reached 70 ½ years of age. Under the SECURE Act, the required minimum distribution age has been increased to 72 for those who were born after June 30, 1949. This increase in age is prospective and does not apply to anyone who was 70 ½ or older in 2019. If you were required to take a minimum distribution in 2019, then you must still take annual distributions under the old rules.


Elimination of Age Cap on Contributions to Traditional IRAs

Under the old rules, individuals with earned income were barred from contributing to traditional IRAs upon reaching age 70 ½. The SECURE Act eliminates the age cap and allows individuals to continue contributing to IRAs even after they turn 70 ½. If you haven’t been contributing to your IRA because you hit the age cap and are still earning income, you may want to restart contributions to it now.


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As this update shows, the tax landscape frequently changes, so it is important to periodically review your estate planning documents to make sure they continue to meet your goals. If you have any questions or would like to review your estate plan, please contact Mark Chioffi at (203) 973-5280 and This email address is being protected from spambots. You need JavaScript enabled to view it. or Aoife Cox Rinaldi at (203) 973-5288 and This email address is being protected from spambots. You need JavaScript enabled to view it.


We look forward to hearing from you.