Planning for Gifts and Large Estates

As you may be aware, the 2017 Tax Act doubled the estate tax exemption to over $10 million for years 2018 through 2025. With inflation adjustments, that amount is set to increase to $11.58 million per person in 2020, up from $11.4 million per person in 2019.

For 2020, as for 2019, the annual per person exempt gift tax limit is $15,000. Note that the federal exemption amount applies to both taxable lifetime gifts, as well as the estate you pass at your death. The annual $15,000 exempt gifts do not count toward the exemption available at death.

Since lifetime taxable gifts and gifts at death must both be protected by the exemption to avoid the federal estate tax of 40%, there have been concerns regarding what happens if you make gifts now, and the exemption declines when the 2017 Tax Act provision sunsets in 2025. The IRS just issued some good news for those gifting early to take advantage of the high exemption:

  • If the high exemption does revert to its $5 million level after 2025, the gifts that you made under the 2017 Tax Act limits will still be exempt.
  • According to final regulations just issued by the IRS, a special rule allows an estate to compute the available exemption based on the higher of the value in effect at the time the gifts were made or on the date of death.

NYS just announced its estate tax exemption amount is increased from $5.75 million to $5.85 million for 2020. This exemption is somewhat misleading because if you are 5% or more over that amount ($292,500 in 2020), the entire amount is taxable – not just the amount above the exemption. NYS’s “cliff rule” is something to plan to avoid, because NYS estate taxes can be as high as 16%.

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