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Will Gifts Now Harm Estates After 2025?

Tax reform virtually doubled the unified gift-estate exclusion for years 2018 through 2025. This has caused concerns related to what the tax consequences will be for post-2025 estates if the decedent, while alive, had made gifts during the 2018-through-2025 period utilizing the higher unified gift-estate exclusion.


At Curran Wealth Management and Hippo Tax Services we believe a panoramic view of your wealth landscape is vital for you and your family’s financial health to include gift tax and estate planning.  Individuals with large estates generally want to gift portions of their estate to beneficiaries while they are still living, to avoid or lessen the estate tax when they pass away.  That can be done through annual gifts (up to the inflation-adjusted annual limit for each gift recipient each year – $15,000 for 2019, from each spouse if applicable) and/or by utilizing the unified gift-estate exclusion for gifts in excess of the annual exclusion amount.  We help our clients take advantage of these strategic tactics and tailor them to their specific needs with our team of dedicated professionals.  The tax reform virtually doubled the unified gift-estate exclusion for years 2018 through 2025, after which – unless further extended by Congress – it will return to its inflation-adjusted former amount.  This has caused concerns related to what the tax consequences will be for post-2025 estates if the decedent, while alive, had made gifts during the 2018-through-2025 period utilizing the higher unified gift-estate exclusion.  Would that cause a claw back due to the reduced exclusion? 

The Treasury Department has proposed taxpayer-friendly regulations to implement changes made by the tax reform, the 2017 Tax Cuts and Jobs Act (TCJA).  As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level for those gifts once the exclusion decreases after 2025. 

In general, gift and estate taxes are calculated using a unified rate schedule on taxable transfers of money, property, and other assets.  Any tax due is determined after applying a credit based on an applicable exclusion amount. 

The applicable exclusion amount is the sum of the basic exclusion amount established in the statute plus other elements (if applicable) described in the proposed regulations.  The credit is first used during one’s life time to offset gift tax, and any remaining credit is available to reduce or eliminate estate tax. 

The TCJA temporarily increased the basic exclusion amount from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation.  For 2018, the inflation-adjusted basic exclusion amount is $11.18 million; for 2019, it is $11.4 million.  In 2026, the basic exclusion amount will revert to the 2017 level of $5 million, adjusted for inflation. 

To address concerns that an estate tax could apply to gifts exempt from gift tax through the increased basic exclusion amount, the proposed regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the basic exclusion amount applicable to gifts made during one’s life time or the basic exclusion amount applicable on the date of death.  

We at Hippo Tax Services are committed to staying as up to date as possible as new tax guidance is published and will do our best to keep you informed of any significant developments. 

If you have any questions related to gifting and estate planning, the members of Hippo Tax Services are always available to help you. 

Please check with your tax advisor, your Curran Wealth relationship manager, or contact Curran Wealth Management if you have any questions.  
518.391.4200 •
info@curranllc.com

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  The contents of this article are based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax advice.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services.