Some questions of estate planning and business transition to consider before the end of 2021 | Schwabe, Williamson and Wyatt PC



As we move into the final quarter of 2021, there is still a lot to do and plan ahead before the end of the year. There are also timing considerations given the proposed legislative changes and the time required to accomplish some of those elements. You should NOW review your estate planning or year-end business transition concerns. There are several things to consider and consider, such as year-end giveaways, appraisals, and tax considerations, including issues specific to those who have taken out Paycheck Protection Program (“PPP”) loans.

Below is a list of things we’ve identified that you may want to consider as you plan for the end of 2021 and future transitions.

End of year gifts
Estate planning
End of year charitable donations
Year-end planning for income tax matters
Paycheque Protection Program (“PPP”) Year-End Loans and Planning
Business transition planning

End of year gifts

Federal gift tax exemptions are at an all time high. These are the types of exemptions to use or lose and have year-end implications. Now is also the time to take advantage of the assessment discounts currently available for owned business interests and the assessment opportunities for the COVID-19 pandemic (see below for more information on the assessment). Assets to consider for giving in 2021 include:

  • Negotiable securities
  • Business interests: includes outright donation and use of family businesses and other entities to remove future capital gain from taxable areas. These entities are currently eligible for appraisal discounts, which provides great opportunities to take advantage of your inheritance and gift tax exemption. These valuation reductions could be threatened if certain tax changes occur, see OP-ED: Potential tax changes may increase the cost of transferring family businesses).
  • Charitable Donations: See below for additional charitable allowances under the CARES Act
  • Long-term assets valued

Keep in mind that it takes time to analyze, consider, and plan for lifetime gifts, especially big lifetime gifts, so the earlier you start the gift planning process the better. To learn more about creating a legacy through a lifetime gift, see Capital Press’s commentary: Creating a Legacy through a Lifetime Gift. It’s especially important to start early if you are considering any giveaways that need to be given by the end of the year.

Estate planning

There are several considerations for year-end estate planning, including reductions in estate and tax planning, potential tax reform, and whether your current estate plan needs tune-up.

  • Cancellation of the inheritance and gift tax exemption: The current amount of the federal inheritance and gift tax exemption for 2021 is $ 11.7 million. This exemption is temporary and is expected to revert to the previous federal law in early 2026. Once canceled, the exemption amount will be $ 5 million adjusted for inflation, or about half of the current amount. There are discussions in Congress on the possibility of accelerating this decline from January 1, 2022. This means that from January 1, 2022, the federal exemption from inheritance and gift tax could be reduced by half.
  • Tax Reform: Depending on how things play out in Congress, we might see other significant changes to federal inheritance and gift tax rules, so we recommend that you keep an eye out for these developments. Learn more about three recent tax reform proposals that could impact your estate planning. See Tax reform: three estate planning proposals to watch out for
  • Consider Gifts: Given the potential changes, we encourage you to consult with your estate planning lawyers and other professional advisors to discuss the suitability of a lifetime gift for your family. It is important to engage in these discussions as early as possible – you shouldn’t wait because the window for big giveaways may close!
  • Check your plan: The end of the year is always a good time to review your estate plan and determine if it needs revisions. For more information, see When to Fine-Tune Your Estate Plan and Four Essential Steps to Estate Planning in Uncertain Times. For business owners, this type of planning is especially critical to do. See Estate Planning and Estate Planning – Why Both Are Important.

End of year charitable donations

The Coronavirus Aid, Relief and Economic Security Act 2020 (“CARES Act”) encourages additional charitable giving, and the provisions for charitable giving have been extended and some of the benefits have been extended to at the end of 2021 by the Consolidated Appropriations Act passed on December 27, 2020. It allows a deduction of $ 300 above the line for charitable cash donations for non-itemized taxpayers, and increases the limit of Charitable deduction adjusted gross income percentage from 60% to 100% for certain taxpayer contributions that itemize, and increases the Corporate Deduction Limit from 10 to 25%.

For more details on these opportunities, see Extended Benefits for Charitable Giving Under the CARES Act for 2021

Are you wondering where to start? See Tips for planning charitable giving.

Year-end planning for income tax matters

Due to the uncertainty of future tax situations, before the end of the year, individuals and business owners should discuss with their tax and estate planning professionals the timing and effect possible changes to:

  • Personal income tax rates – state and federal
  • Report losses
  • Basis or cost
  • C company losses
  • Corporate Income Tax Rates – State and Federal
  • 1031 exchanges
  • Capital gain rate
  • Amounts of exemption from inheritance and gift tax
  • Suspension of minimum distributions required for qualifying pension plan accounts


In fgeneral: Many estate planning and business succession planning tools require a valuation of a business or real estate or other assets. The best reviews are done by independent third parties, and they take time. Please plan ahead: it may already be too late for 2021. There are many reasons to assess: estate planning, estate planning, share and option programs, partnership split, refinancing, recapitalization, divorce, etc. There is an inherent tension over the reasons for valuation and the use of valuation. For example, for estate and estate planning purposes, lower valuations are desired. However, for stock and option repurchase programs, valuations often need to be at fair market value. Please keep these things in mind when securing and using a review.

Gift opportunities and valuation issues: The economic effects of COVID-19 have hurt many businesses, although many sectors have recovered or performed better than expected. For those who continue to experience negative effects, there is a potential opportunity to take advantage of depressed valuations to accelerate donations for homeowners planning to transfer ownership to the next generation. When making such gifts, the best practice is to work with an estate planner who can hire an independent third party to perform a business valuation. Such evaluations take time.

When making such donations, it is important to take a consistent stance on the valuation of the business. In most situations, business owners want to claim a high valuation. However, when making donations, homeowners often want to claim a low appraisal to minimize their potential tax. This creates some risk when owners seek a high valuation in certain situations and a low valuation for estate planning and giving. Business owners should ensure that their advisors are aware of any recent sale of equity in the business and the valuation used in such transactions. Additionally, if a business has a buy-sell agreement, business owners should make sure their advisors are aware of all of the provisions of those agreements that set out a valuation, such as built-in formulas. It can be difficult for a business to claim a lower valuation than that implied by the buy-sell contract.

Paycheque Protection Program (“PPP”) Year-End Loans and Planning

If PPP loans have been obtained and have not been canceled, be aware that there could be timing issues for year-end planning and tax issues and cancellation. These problems include:

  • Any change in ownership or structure may require prior lender approval and some changes will require SBA approval or other requirements. These approvals or requirements can take from two to eight weeks. Since these are loan requirements, they will affect the discount. Please speak to your lender before any change of ownership.
  • The forgiveness process takes time – at least five months from the date the application is accepted, and possibly longer if the loan is over $ 2 million.
  • Open-ended questions: There are many gray areas, but be sure to document your findings.

For more details, please see Asking for a Pardon: Revised PPP Loan Forgiveness Requests and Tips (updated 08/12/2021) and the Consolidated Appropriations Act, 2021: Tax Update (1/7/2021).

Business transition planning

As we emerge from the pandemic, there are a number of reasons to align business strategy with your transition plan and estate plan. In many industries, buyers are looking to position themselves in competitive industrial environments with strategic acquisitions, creating opportunities for business owners looking to sell. Private equity continues to raise significant capital and often seeks to invest in well-run private companies whose owners are looking for cash but want to stay in the business. Succession plans involving key employees are attractive to many private companies, but increasing staff turnover presents challenges for those looking to retain top talent with ownership potential. Fiscal and economic uncertainty has accelerated the time to sell for many homeowners. Companies with a written transition plan are better prepared to seize attractive third-party opportunities that arise and are more likely to have successful internal transitions.


Leave A Reply

Your email address will not be published.