The Tax Cuts and Jobs Act of 2017 increased the basic exclusion amount (BEA) for estate and gift tax purposes from $5,000,000 to $10,000,000 which, after allowing for inflation adjustments, computes to $11,400,000 starting on January 1, 2019.
Based on the current BEA, a person can die next January with an estate worth $11,400,000 and pay no federal estate tax. We know after 2025 the BEA is scheduled to be reduced to $5,000,000 ($5,700,000 in 2019 with inflation adjustments). What we have worried about is whether gifts made during lifetime that exceeded $5,700,000 but were less than $11,200,000 would somehow be subjected to estate tax after the reduction of the BEA beginning in 2026.
In a Release dated November 21, 2018, the Internal Revenue Service has issued a proposed regulation assuring that no such surprise tax will occur. Gifts that were tax-free at the time they were made, because they were within the BEA, will not be subject to estate tax later when (or if, depending on the political realities) the BEA is reduced.
Gift and estate planning is tricky business and we will be pleased to discuss this complicated subject with you.
This post was written by LeRoy Metz.