Individuals Can Make Large Gifts Now Without Negatively Affecting Estates After 2025
Individuals that made, or plan to make, large gifts between 2018 and 2025 can do so without losing the tax benefit of the higher estate and gift tax exclusion amount once the exclusion decreases after 2025.
The Treasury Department and the Internal Revenue Service issued final regulations under § 20.2010-1 confirming no adverse impact on decedents’ estates after 2025 for individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025.
The Tax Cut and Jobs Act (TCJA), enacted in 2017, increased the basic exclusion amount for gift and estate tax from $5 million to $10 million for tax years 2018 through 2025 (indexed for inflation to $11.4 million in 2019), sheltering any estate and/or gifts under the exclusion amount from estate or gift tax. The TCJA is set to expire at the end of 2025. Therefore, under current tax law, the basic exclusion amount will revert to $5 million (as adjusted for inflation) on January 1, 2026.
The concern was that after 2025, a decedent’s estate could be taxed on gifts that were previously sheltered from gift tax by the increased exclusion amount. The final regulations provide a special rule that allows the estate to compute its estate tax credit using the greater of the basic exclusion amount applicable to gifts made during life or basic exclusion amount applicable on the date of death. This special rule ensures that gifts made during 2018-2025 that were exempt from gift tax will not be subject to estate tax upon death.
Taking advantage of the higher exclusion amount before 2026 can be a great estate-planning tool especially now that the final regulations confirm there is no adverse impact. Please consult the Citrin Cooperman Trust and Estate Practice Group for assistance with your client’s planning.