Increases to basic estate and gift tax exemptions were welcome by many, when the new tax law details were unveiled. However, questions were raised: how long will those exemptions be in place? What happens when they expire?
The changes increased the exemption to $10 million per person from $5 million. When you account for inflation adjustments, that exemption is currently at $11,180,000 for 2018, increasing to $11,400,000 for 2019.
Financial Planning’s article, “IRS update will benefit clients making gifts to family members,” says that for a married couple, the exemption can be doubled to $22 .8 million for 2019.
The estate and gift tax exemption can be used for lifetime gifting. However, it’s set to revert back to the pre-law levels after the year 2025.
The annual gift exclusion amount is $15,000 for this year. That’s an increase from $14,000, where it had been since 2013. The federal estate and gift tax exemptions rise with inflation.
This leaves an open question: What if I make a large gift now and use up the current $11 million exemption, but then die after 2025 when the exemption goes back to the lower levels?
Is it possible that the IRS will claw back these gifts and tax them?
The IRS finally answered this lingering concern, in its newly issued-proposed regulations.
It says that making large gifts now, won’t create any issues for estates after 2025.
Now, you won’t have to worry about making large gifts under the current larger exemption levels.
In effect, it’s a “use it or lose it” proposition for taking advantage of the current exemption, before it expires.
It is best to make sure that the IRS’s generosity aligns with your estate plan. Meet with your estate planning attorney to talk about how gifting fits into your estate plan, now that the rules about the new exemptions have been clarified.
Reference: Financial Planning (November 21, 2018) “IRS update will benefit clients making gifts to family members”