The final regulations around the increased gift and estate tax exclusion amounts in effect from 2018-2025 has been issued finally by the Treasury Department and the Internal Revenue Service (IRS). As also confirmed by the final regs that those individuals will not be adversely impacted after 2025 when the exclusion levels are set to drop to pre-2018 levels if known to have taken advantage of the increased gift and estate tax exclusion amounts.
Thus, the estate and gift tax exemption has been doubled, raising the base amount of $5 million to $10 million per person as what is stated in the History of the Estate and Gift Tax Exemption Increase the Tax Cuts and Jobs Act of 2017. Avoiding the estate tax rate of 40%, this amount is how much an individual can give away tax-free. Now, the current estate tax exemption amount is $11.4 million per person with inflation adjustments in it. Temporarily scheduled to decrease after 2025 is the state tax bump. But as to whether gifts would be taxed later when the exemption fell, that was the question that was brought up frequently. As for now, there was no certainty and still, many questions are arising in relation to the proposed rules issued last year that said no.
In effect from 2018 to 2015, for the individuals taking advantage of the increased gift and estate tax exclusion amounts; the Treasury and IRS will issue IR-2019-189 confirming those individuals not adversely impacted after 2025 when the scheduled exclusion amount is drop to pre-2018 levels. Individuals planning to make large gifts between 2018-2025 can now do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025, as explained by the IRS.
So, what's all about year-end tax planning? It clearly stated that for huge wealth transfers made under the Trump tax law, the regulations confirmed that there will be no clawback. As you follow the proposed rules that were issued a year ago, though this is really no big surprise however these final regulations provide a reason for you and your estate lawyers to act and make gifts now without worrying since it has its finality and certainty.
Say that you put $10 million in a trust for your heir in 2019, for example, and you die in 2026 when the estate tax exemption possible reverts to $5 million. That extra $5 million gifts is not anymore your estate's responsibility to pay. Instead, the IRS says that the full $10 million in this example would be exempt forever under the new regulations.
As to the inclusion of several examples showing how these calculations work, the final regulation addresses concerns that were raised in public comments. The areas such as the Basic Exclusion Amount (BEA), the Deceased Spousal Unused Exclusion (DSUE), and the Generation-Skipping Transfer (GST)remains as complicated areas with a lot to understand.
So, IRS stresses this only works if you make gifts during the 2018-2025 time period. Take note of that. Due to inflation adjustments, the gift-givers get the benefits of it as what the regulation example makes a clear statement to gift-givers. Hence, the time to act is now since this benefit is use it or lose it.
An announcement given by the Internal Revenue Service on November 6, talking about the official estate gift and tax limits for 2020 explains that the estate and gift tax exemption is $11.58 million per individual, and up from $11.4 million in 2019. That means heirs of every individual may receive $11.58 million without paying federal estate or gift tax while amounting $23.16 million for a married couple that they can shield.$15,000 will remain as the same annual gift exclusion amount. Just last year, in the Trump tax law the federal estate tax exemption amount is in the base level of $10 million—through 2025—and the Internal Revenue Service said that if/when the exemption is lowered, it wouldn't clawback lifetime gifts. You may consult a tax professional who can help you explain the most important details for more information and for you to further understand it.
CONTINENTAL TAX AND ACCOUNTING SERVICES