“Lions and tigers and bears” and “winged monkeys” may have been the source of Dorothy Gale’s worries in the Wizard of Oz. Even without scary critters or wicked witches, 2020 has had its own sources of concern – impeachment, pandemic, and protest, oh my!

2020 will be behind us before you know it with most folks saying “good riddance.”

As we approach year end, I suggest you consider the following actions:

• Review Estate Planning Documents – Review your existing estate planning documents to make sure they are up-to-date. Estate planning documents are so important that you should review them every so often and immediately after any major life event, including the birth of a child, inheriting a large sum of money, divorce, marriage, etc.
• Noncharitable Giving – Now may be a great time to make gifts that benefit your spouse and descendants. The historically low interest rates and lifetime gift and estate tax exemptions present a powerful estate planning opportunity. Many estate and gift tax strategies hinge on the ability of assets to appreciate faster than the interest rates prescribed by the IRS. In addition, the economic fallout from the pandemic is depressing many asset values. The current gift and estate tax exemptions are set to expire in a few years.
• Charitable Giving – The Tax Cuts and Jobs Act doubled the standard deduction while repealing or limiting many itemized deductions, leaving millions fewer taxpayers claiming actual itemized deductions. Typically, there is no tax benefit for giving to a charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions from taxpayers who don’t itemize. To take advantage of this provision, taxpayers should make sure to donate before the end of the year. Read “Charitable Giving in the Time of COVID-19” for details. Also consider gift-bunching to a donor advised fund (see our December 2018 Estate Planning Essentials article on this topic).
• Consider an Installment Sale to an Irrevocable Grantor Trust – An installment sale to an irrevocable grantor trust can be an effective estate planning strategy to remove assets from your estate while preserving an income stream. When a gift or sale is made to a grantor trust, the grantor still is treated as the owner of the trust’s assets for income tax purposes. The grantor, rather than the trust, pays the tax on the trust’s taxable income, and transactions between the grantor and the trust are not subject to income tax. The appreciation on assets sold to the trust is removed from the grantor’s estate.
• Consider a Roth Individual Retirement Account (IRA) Conversion – 2020 may be a great year to convert your Traditional IRA to a Roth IRA. There is no income limit for converting a Traditional IRA to a Roth IRA. Although a conversion may not be right for everyone, there are several reasons to consider a 2020 Roth IRA conversion, including the risk of higher future income tax rates and recent changes to required minimum distribution rules under the SECURE Act. Roth conversions are permanent, so you should be certain about the decision before making a change.