The United States saw some of the most sweeping changes in
December 2017 with the passing of the Tax Cuts and Jobs Act (TCJA). Many of the amendments to the Internal
Revenue Code are temporary in nature, set to expire at the end of 2025. For
example, the basic exclusion amount (BEA), which doubled from $5 million to $10
million prior to being adjusted for inflation, will return to pre-2018 levels when
the TCJA is set to expire. One major concern, raised by public comments, is
what will happen to individuals taking advantage of the increased gift and
estate tax exclusion amounts when the exclusion amounts drop to pre-2018
levels? Will they be adversely impacted?
For example, what would happen if a taxpayer chose to gift
their entire $11.4 million (adjusted for inflation) lifetime exclusion amount
during the TCJA? Rather than using up their basic exclusion amount at their
time of death, a taxpayer may choose to use their basic exclusion amount during
their lifetime by making large gifts.
Any unused portion would be used to offset or possibly eliminate estate
taxes when a taxpayer perishes.
Those concerns were laid to rest last month when the Treasury Department and the Internal Revenue Service issued final regulations confirming that individuals who plan to take advantage of the TCJA-increased basic exclusion amount will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. The final regulations also provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.
For 2019, the inflation-adjusted BEA is $11.4 million. If you
are considering making a large gift within the next few years it is important
to understand how these changes will impact your personal or business
operations. The professionals in our office can answer your questions, call us