The IRS recently issued proposed regulations that effectively locks in the benefit of the higher lifetime gift tax exemption provided in the new tax law but only if utilized prior to 2026. The TCJA provided for an increase of the gift exemption from $5.49 Million to $11.18 Million per person but the law is due to sunset after 2025 with the exemption reverting to $5.49 Million. The question on many tax planners’ minds was what happens if a taxpayer utilizes the additional gift exemption and dies after 2025? Under the old rules the gifts over and above the $5.49 Million exemption could be added back to the taxable estate and thus be subject to tax. The IRS has now stated effectively that taxpayers should use the higher exemption or risk losing it after 2025. Should these regulations be made permanent and assuming future congresses do not alter the current gift/estate tax laws there will be no adverse tax effect to making gifts prior to 2026 of up to the gift tax exclusion currently $11.18 Million (plus inflation adjustments). We believe the proposed regulation opens a significant window for many of our clients to pass more of their estates tax free to their heirs. A caveat is that the proposed regulations do not specifically address the issue of generation skipping transfer (GST) tax and so we do not at this time recommend making such transfers in amounts exceeding $5.49 Million per donor.
We are happy to discuss the new tax laws and the proposed regulations to see how they might apply to your particular situation in making the most tax efficient estate plan possible. Should there be any further interest, you may contact either George Bruckman or Christopher Canfield directly at 212-695-8100 or by email.