Take Advantage of 2020 Year-End Planning Opportunities

From estate planning opportunities to charitable giving, a look at moves to consider as 2020 comes to a close.

As this year draws to a close, we are working hard to make sure that you are ready for what lies ahead in 2021. Here are just a few of the important year-end planning opportunities we've been thinking about.


If you are interested in transferring wealth to family members or younger generations, the 2020 annual gift exclusion allows for tax-free gifts up to $15,000 per person without it counting toward your lifetime gifting exemption. It's a "use it or lose it" benefit, and we advise taking advantage of it before the end of the year. You can also make tax-free transfers on behalf of another individual directly to a qualifying service provider in connection with medical or tuition expenses.


Those who spread their charitable contributions over a number of years may not receive any tax benefit from these gifts because their combined total deductions fall below the increased standard deduction. In contrast, those who can bunch multiple years of charitable contributions into a single year in order to exceed the standard deduction threshold may be able to fully deduct their contributions. To get the benefit of a charitable deduction this year, consider bunching charitable donations that you intended to make over a number of years and make them all this year so that the total contributions, when added to your other itemized deductions, exceed this year's standard deduction.

Using a donor-advised fund, such as the independent BNY Mellon Charitable Gift Fund, allows donors to contribute assets to an account. Donors may be able claim an immediate tax deduction and then recommend grants to qualified charities over a period of time. Donors should review their individual circumstances with their tax advisor before making contributions to a donor-advised fund.

Gifting appreciated securities that have been held longer than one year may be more beneficial than gifting cash. Doing so would allow a donor to claim a deduction for the fair market value of the securities without having to pay capital gains taxes that would otherwise be incurred upon their sale.

Changes have been made recently to the charitable giving rules. The CARES Act increased the amount of cash that may be given to a public charity for 2020 from 60% to 100% of the donor's adjusted gross income. Donor-advised funds and supporting organizations do not qualify for this increased limit.

A donor over the age of 70 ½ can still make a direct transfer of up to $100,000 from his or her IRA to a public charity (other than a donor-advised fund or a supporting organization) and have that distribution excluded from his or her taxable income. That is known as a "qualified charitable distribution," or QCD. However, there is one slight change in the QCD rules: As a result of the SECURE Act, an individual who is over 70 ½ and has earned income can make a tax-deductible contribution to an IRA. However, any QCD must be reduced by the tax deductible contribution made to the IRA after age 70 ½.


The CARES Act suspended minimum required distributions for 2020. Those who took distributions prior to the enactment of the CARES Act had until August 31 to recontribute the distribution to their retirement plan.

The SECURE Act established a new "required beginning date" for taxpayers to begin taking their minimum required distributions. Previously the required beginning date for most people was no later than April 1 of the year after the taxpayer reached age 70 ½. For those born after June 30, 1949 that age is now 72. Plan participants should be aware that they have the opportunity to leave money in the retirement account until they reach age 72 when they then have to begin withdrawals.

The SECURE Act made other important changes to the distribution rules for retirement plans. Generally, designated beneficiaries of a retirement plan participant who has died after December 31, 2019 must take distributions over a 10-year period. Exceptions exist for "eligible designated beneficiaries." They can still take distributions over their life expectancy. An eligible designated beneficiary can include a (1) surviving spouse, (2) minor child of the plan participant, (3) disabled person, (4) chronically ill person or (5) person not more than 10 years younger than the plan participant. These changes will require retirement plan participants to review who they named as the beneficiary of their retirement plan, especially if the beneficiary is a trust. As a result of the changes, accumulation trusts may be preferred over conduit trusts. The changes made to the distribution rules by the SECURE Act require a review with your tax advisor as to who is named the beneficiary of the retirement plan and if changes to the named beneficiary are advisable.


With interest rates at historic lows, now is a perfect time to consider borrowing or taking advantage of interest-rate sensitive estate planning vehicles. For example, you should review any outstanding debt or existing contracts tied to interest rates and consider whether you would benefit from refinancing or swapping out of an adjustable rate loan for a fixed rate loan.

Our experienced private bankers can assist in delivering a tailored solution for cash assets to help make the most of the current interest rate environment.


If you haven't done so recently, this is an opportune time to review wills, trusts and other estate planning documents to ensure that they reflect any changes in your personal or financial situations that occurred in 2020. Perhaps your family has grown, you've acquired assets that need to be accounted for or simply have a different perspective on how your estate should be handled.

Higher federal exemption amounts can allow for tremendous transfer of wealth and potentially mitigate some of the estate and/or gift tax burden. In 2020, both federal estate and gift exemptions increased to $11.58 million per individual ($23.16 million for married couples). However, these provisions of the Tax Cuts and Jobs Act (TCJA) will sunset in 2026 and revert back to the much lower, pre-2018 levels unless Congress takes further action.

Following the passage of the TCJA, there was some concern that an individual's estate might be inappropriately taxed with respect to gifts made under the increased exemption amounts if he or she passed away after the amounts reverted to pre-2018 levels in 2026. But on November 22, 2019, the IRS announced that individuals who take advantage of the increased gift and estate tax exemption during this time will not be adversely affected in such a scenario. Thus, individuals who make large gifts while the increased gift tax exclusion is available can do so without concern that they will lose the tax benefit once the exclusion decreases after 2025. Those who don't take advantage of the increased exemption may lose a once in a lifetime opportunity to transfer significant wealth before the exemption "sunsets" in 2026 or is decreased sooner by legislative action. The current low interest rate environment coupled with an increased exemption make techniques like intra-family loans, installment sales to intentionally defective grantor trusts, grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs) and charitable lead annuity trusts extremely valuable.

Your plan should be flexible to adapt to changes in tax law as well as your personal circumstances. A discussion with BNY Mellon may provide you with additional insights and ideas to consider with your other professional advisors.

Investment Considerations

Portfolio rebalancing — selling asset classes that have appreciated in value in order to purchase asset classes that have declined in value — serves to maintain the alignment of portfolio characteristics and stated investment objectives. Intentional rebalancing prevents portfolios from developing excessive risk and reduces the likelihood that clients will experience negative downside surprises. Rebalancing also theoretically provides an opportunity to increase future returns relative to a buy-and-hold posture by purchasing "cheap" assets and selling "expensive" assets.

Like most portfolio management actions, there are varying degrees of tax efficiency that can be achieved in a rebalancing program. While a certain asset class may reflect gains, this doesn't mean that there aren't losses hiding beneath the surface in individual strategies, securities or even tax-lots. Taking the time to reach this level of granularity while rebalancing can reduce the tax implications of trimming appreciated asset classes, and sometimes even result in realizing losses. Part of consistent planning should be reviewing your portfolios regularly with your wealth team to determine if rebalancing is needed and what other actions should be taken to address potential tax implications.

As always, it is important that your advisory team of wealth manager, CPA and estate attorney work in concert to minimize the government's share of your wealth, especially at this time of year.

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