Question: I took advantage of the increased lifetime exemption amount and it has reverted back to a lower amount – now what?
Answer: Under the Tax Cuts and Jobs Act (TCJA) passed at the end of 2017, the basic exclusion for estate and gift tax was increased to $10 million, indexed for inflation after 2011, for decedents dying after 12/31/2017 and before 1/1/2026. The increased amount is set to revert back to $5 million for gifts made and estates of decedents dying after 12/31/2025. With the increased amount being temporary, the IRS has proposed regulations to prevent a “clawback” of the applicable exclusion amount. The proposed anti- clawback regulations will allow the exclusion amount to be the greater of the two credit amounts for decedents dying after 12/31/2025 that made gifts under the higher exclusion amount.
Example: Taxpayer made post-1976 taxable gifts of $9 million when the exclusion amount was $10 million. Taxpayer dies 3/1/2026 when the exclusion amount is $5 million. Under the proposed anti- clawback regulations, the IRS would allow a basic exclusion amount for the taxpayer’s estate of $9 million.
As of the end of June 2019, the proposed regulations have still not been finalized. For additional information on the increased exemption, the proposed anti-clawback regulations and your estate planning questions, please contact one of our tax professionals for assistance.