OUR THOUGHTS ON:

The Estate and Gift Tax Exemption Planning Puzzle

Estate Planning|Tax|Tax Reform

By Kari Tallarico

As every good tax advisor knows, planning is key. So what happens when you have to plan for the unknown? This is the situation that estate and gift tax planners are currently facing in response to the Tax Cut and Jobs Act (“TCJA”) signed into law on December 22, 2017.

The federal government imposes an estate tax on the transfer of property included in the estate of the deceased.  An exemption to the estate tax is available, which allows a certain amount of the decedent’s estate to pass without incurring any taxes. Some, or all, of this exemption can also be used during an individual's lifetime in the form of gifts.

Under the TCJA, the estate tax exemption amount has been doubled from $5.49 million (in 2017) per person to $11.18 million between January 1, 2018 and December 31, 2025. This means that through December 31, 2025, an individual can distribute up to $11.18 million in assets entirely free of estate or gift tax. For a married couple, the amount doubles to $22.36 million, as they may aggregate their exemption. However, on January 1, 2026, the exemption will be subject to a “sunset” provision, causing the amount to revert to the $5.49 million dollar exemption of 2017, plus any increase for inflation.

This raises the question - what happens if a taxpayer utilizes her entire exemption by way of lifetime gifts at the end of 2025 and passes away after January 1, 2026 when the exemption amount has reverted back? This creates concerns as to whether the estate could possibly owe tax even if the decedent had no taxable assets due to prior gifting. The TCJA did not address this issue. Under the Internal Revenue Code (“IRC”) Section 2001 (g)(2), the U.S. Department of Treasury has stated that it will release instructions to address this potential issue as necessary. Schneider Downs is committed to keeping you informed as any instructions come to light.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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