What Happens If Large Gifts Are Made Now?

With the Tax Cuts and Jobs Act of 2017, the increased gift and estate tax exclusion amounts are set to sunset in 2025.  The exclusions are $11.2 million in 2018 and will increase each year until 2025, indexed for inflation.  But, what will happen if you make a large gift now?  Will you risk the tax benefit of the higher exclusion level if the exemption decreases after 2025 to the pre-TCJA amount indexed for inflation (or perhaps sooner depending upon any new laws)?

The Treasury Department and the IRS issued proposed regulations to enable individuals planning to make large gifts to do so without concern of losing the tax benefit of the higher exclusion level.

Gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is determined after applying a credit – formerly known as the unified credit – based on an applicable exclusion amount.

The applicable exclusion amount is the sum of the basic exclusion amount established in the statute, and other elements (if applicable) described in the proposed regulations. The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax.

The TCJA temporarily increased the exclusion amount from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. In 2026, the exclusion amount will revert to the 2017 level of $5 million as adjusted for inflation.

To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased exclusion amount, the proposed regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the exclusion amount applicable to gifts made during life or the exclusion amount applicable on the date of death.

Stay tuned for more information regarding large gifts and possible impact in the future.

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Kay Sowa

About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent, an Accredited Estate Planner® as well as a Certified Trust and Financial Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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