One of the major changes in the 2017 Tax Cuts and Jobs Act was an increase in the estate and gift exemption, which is the amount that one can gift during their life or at death free of taxes. In 2017, that amount was $5.49 million and with the new tax law the exemption rose to $11.2 million for an individual or $22.4 million for a married couple.
With the tax changes set to sunset in 2026 and the exemption set to readjust down to 2017 levels, the next several years seemed like an opportune time for those with potential estate tax issues to gift away assets. However, a big question remained unanswered, which is how would gifts made during the period of a higher exemption (2018 through 2025) be treated for estates calculated after 2025. The primary concern was that an individual could gift assets using the increased exemption without being concerned about the gift tax but that those gifted assets may be subject to a clawback and be brought back into the estate and subject to the estate tax if the estate was then settled after 2025 when the exemption amount resets.
Time to gift
Thankfully the IRS just announced some guidance on this subject and proposed regulations that any gifts made from 2018 to 2025 using the increased exemption would also be free from estate tax in the future – eliminating any concern of a clawback. Once these regulations are approved, this means we have a limited window to use the exemption or simply will lose it.
Subject to change
As always, these laws are subject to change so we are encouraging folks to utilize their increased exemption amount once the regulations pass. If you are currently gifting assets or think that a gifting strategy may be right for you please contact your Wealth Advisor today.
Important disclosure information
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RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.