The U.S. Treasury provided clarity for estate planners and their clients by issuing regulations that confirm that individuals who make gifts now seeking to benefit from current exclusion levels (basic exclusion amount of $11.4 for 2019) will not be adversely impacted after 2025 should the exclusion sunset and revert back to pre-2018 levels ($5million for 2017).
Treasury Decision 9884 codifies the benefits described above and clarifies the issue by including technical language and examples that address the concerns of estate planners and others. The Treasury addressed these issues by providing that an estate may compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death. Pursuant to these changes, estate planners can confidently advise clients that make large gifts between 2018 and 2025 that they can do so without concerns that such gifts will trigger higher taxes than anticipated due to a sunsetting of current exclusion levels.
The current gift and estate tax structure provides for a basic exclusion amount (hereinafter “BEA”). The exclusion is first used during life to offset gift tax. Any remaining credit is available to reduce or eliminate applicable estate taxes. The 2019 BEA (adjusted for inflation) is $11.4 million. The BEA will revert to $5million (adjusted for inflation) in 2026 if no additional action is undertaken.
