No More BEA Drawbacks Or Clawbacks for Estates
The IRS issued guidance in March that wealthy taxpayers who take advantage of the increased gift and estate tax exclusion amounts in effect from 2018 until 2025 will NOT be negatively affected when the exclusion amount is scheduled to drop after 2025 to the old levels prior to Tax Reform.
The current exclusion for the amount of assets that can be passed along to heirs without triggering gift or estate, or GFT taxes, is $11.4 million for individual taxpayers and $22.8 million for couples (inflation adjusted for 2019), until it expires at the end of 2025. Concerns that significant tax-free gifts made now could trigger an estate tax bill later, or for people who die after the rule expires, became evident. Many of our clients had worries about the possibility of a “clawback” when the exemption amount declines in 2026, if they made gifts using the full exemption amount. Guidance now clarifies that those who took advantage of the temporarily increased exemptions won’t face clawbacks when the exemption is scheduled to decrease. Clients may now be able to move ahead with transfers of wealth without the worry.
The IRS has stated that when calculating the estate tax, if the taxpayer passes away after 2025 and has estate tax, that decedent won’t be penalized or won’t incur additional estate tax for the prior gifts that they made. Further addressing the issue that an estate tax might apply to gifts exempt from gift tax by the increased basic exclusion amount, or BEA, the IRS issued a special rule enabling an estate to figure its estate tax credit using the higher of the BEA applicable to gifts made during a person’s lifetime, or the BEA that’s applicable on the date of their death.
For more information visit https://www.irs.gov/newsroom/estate-and-gift-tax-faqs
CONTACT US: We foresee a major gift and estate planning opportunity now that the IRS has made clear it won’t seek retroactive taxes and making large gifts now won’t harm estates after 2025. Talk to your TGF or Fuoco Group professional about considering your options now, before the basic exclusion amount, or BEA, goes back to the 2017 level of $5 million, as adjusted for inflation.
Article not intended as financial advice.
