Do I Need to Make a Large Gift Now?

Many wealthy individuals are asking that question out of fear that the historically high estate/gift tax exemption of $11,580,000 ($23,160,000 for a married couple), indexed annually for inflation, could be significantly decreased prior to its scheduled “sun-setting” on December 31, 2025 to $5,490,000 (indexed for inflation) if the Democratic party sweeps Congress and the White House in November. There is no single correct answer or analysis as every individual and family situation is different. But here are some general observations: (i) a gift of an asset during lifetime forgoes the opportunity to get a “stepped up” tax basis for income tax purposes if the taxpayer owned the asset at death; (ii) BUT, currently, the estate tax rate (40%) is much higher than capital gain rates, and repeal (or significant limitation) of the “stepped up” basis rule itself is also part of Biden’s tax proposals; (iii) if the individual is single with a taxable estate in excess of $11,580,000 (or married with a combined taxable estate for both spouses in excess of $23,160,000), the individual needs to seriously consider strategic gift planning regardless of what happens to the estate/gift tax exemption – they already have a big tax problem; (iv) the “sweet spots” for more careful analysis are the single person with a taxable estate between $11,580,000 and $5,490,000 and married couples with a combined taxable estate between $23,160,000 and $10,980,000.

This is a complex planning paradigm and early consultation with tax advisors is a must. Our most alert and prudent wealthy clients have already reached out to start the discussion of what options are available to them in the worst case scenario of the exemptions being significantly decreased “ahead of schedule”.

Advice that never grows old – plan for the worst, hope for the best!

For more information, please contact Henry C.T. (“Tip”) Richmond, III in our Lexington office at 859-899-8712 or any other attorney in our Tax or Estate Planning & Trusts Practice Groups.

August 31 Deadline Looming for Coronavirus Related Return of Required Minimum Distributions

The IRS this week issued Information Release 2020-187 to remind IRA owners and beneficiaries, as well as participants in workplace retirement arrangements, that they have until August 31 to return required minimum distributions (“RMDs”)received earlier this year and, thereby, avoid paying income tax on the distribution in 2020.  The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, provides that RMDs need not be made during 2020.  A taxpayer who returns an unwanted RMD by August 31 can avoid paying income tax on that distribution, allowing the returned funds to be invested tax-free for another year.  This opportunity applies to IRA owners and beneficiaries, including beneficiaries of “inherited” IRAs.

The CARES Act also expanded the ability of certain retirees and certain beneficiaries to withdraw or borrow from retirement arrangements under favorable terms.

For more information, please contact Henry Grix at or review the IRS website questions and answers at

IRS Grants Relief for 2020 RMDS

The IRS recently granted additional relief for retirement account owners due to Covid-19. Generally, when a person attains age 72 (previously age 70 ½) that person is required to begin taking required minimum distributions (“RMDs”) from their retirement account each year based on their life expectancy. Individuals with inherited IRAs are required to take annual RMDs regardless of their age.

The CARES Act, enacted earlier this year, provides a waiver of RMDs for defined contribution plans (such as 401(k) and 403(b) plans) and IRAs for 2020. Instead of being required to take an RMD in 2020, an account owner can leave the RMD amount in the account, thereby avoiding taxable income and earning additional tax-deferred growth. Additionally, the IRS recently expanded this relief in Notice 2020-51 by allowing an account owner who has already taken an RMD in 2020 to repay those funds to the retirement account and avoid recognizing such income. An account owner has until August 31, 2020 to make the repayment.

This is an excellent planning opportunity for those who were required to take an RMD in 2020 but are in a high income tax bracket and do not need the funds this year. Not only can the funds be reinvested in the retirement account to continue to grow, the taxpayer can avoid the income tax consequences of a required RMD.

For more information, please contact Tara Halbert in the Lexington, Kentucky office at 859-899-8711.

Don’t Forget Your Charitable Contributions

The CARES Act made a number of well publicized revisions to the tax code, including as to the payment of employee wages and the deduction of interest and net operating losses. Perhaps lesser known are the revisions in the CARES Act relating to charitable giving.

For non-itemizers, there is a new $300 “above the line” deduction on cash contributions made to charities (other than private non-operating foundations, supporting organizations, and donor-advised funds), that is deducted from a taxpayer’s income prior to the calculation of their adjusted gross income. For individuals that itemize deductions, the historical 50% or 60% of adjusted gross income limit on charitable deductions has been raised to 100%, so that an individual will be entitled to take a charitable deduction of up to 100% of their adjusted gross income.

For corporations, the historical charitable deduction limit of 10% of taxable income was raised to 25%.

These tax code revisions provide significant additional incentives for charitable giving in 2020.

For more information, please contact Andrew MacLeod in the Detroit, Michigan office of Dickinson Wright at 313-223-3187 or any member of Dickinson Wright’s tax team.