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The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed on this website, or other estate planning issues, please contact Lara Sass & Associates, PLLC.

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Thanks, IRS

November 27, 2018



The IRS has just issued proposed regulations and announced increased gift and estate tax exemption amounts that offer significant opportunities with respect to making gifts.  With the lifetime federal gift and estate tax exemption amount increased to $11.18 million per individual under the Tax Cuts and Jobs Act, individuals have an unprecedented and limited opportunity to engage in significant gifting until such time as the exemption is scheduled to revert back to the pre-reform exemption amount of $5 million (adjusted for inflation) after 2025 (or perhaps earlier).  It is critical to note that this increased exemption amount is a "use it or lose it" opportunity, given the sunset provision and the chance that a future administration may sooner take action to change the law. 


Clients deciding whether to gift assets to take advantage of the temporary increase in the exemption amount should consider the level of their wealth (including future earnings, income and appreciation), asset protection planning, the need for future access to gifted assets, and the income tax consequences of transfer.  Moreover, clients need to be aware of the recent increase in interest rates and the concomitant effect on powerful gifting techniques.  Specifically, the November Section 7520 rate for use with estate planning techniques such as grantor retained annuity trusts (GRATs), charitable remainder trusts (CRTs), charitable lead trusts (CLTs) and qualified personal residence trusts (QPRTs) is 3.6%, up from 3.4%, where it had remained for the last five months.  The November 2018 applicable mid-term federal rate (AFR) for use with sales to defective grantor trusts, certain intra-family loans and self-canceling installment notes (SCINs) is 3.04% (annual), up from 2.83% (annual) in October.  The benefits of some of the aforementioned planning techniques become less rewarding as interest rates continue to increase.


Proposed Regulations Regarding Clawback.  Another important factor to be considered when deciding whether or not to gift is the proposed regulations just issued by the IRS, which state that there will be no clawback of the use of any lifetime gift tax exemption before 2026, when the enhanced exemption is scheduled to expire.  Accordingly, an individual may use the current excess lifetime exemption of over $5 million and, if the individual dies after 2025, still have $5 million (inflation adjusted) for estate tax purposes.  Likewise, an individual could make a gift now of $11.18 million without incurring an estate tax on his or her death after 2025.  


Increases in Exemptions and Annual Exclusions.  For 2019, the lifetime federal gift and estate tax exemption has been increased from $11.18 million to $11.4 million.  The increased exemption amount is still scheduled to sunset on December 31, 2025 and return to $5 million (adjusted for inflation).


The gift tax annual exclusion remains at $15,000.  The gift tax annual exclusion to a non-citizen spouse has been increased from $152,000 to $155,000 for 2019.  


Beginning in 2019, the New York estate tax exemption is scheduled to increase to $5.49 million (from $5.25 million in 2018), and will likely increase with inflation each year thereafter.  


Conclusion.  Low interest rates, as well as the increased lifetime exemption amount, without fear of clawback, present significant opportunities with respect to gifting that should be taken advantage of before interest rates increase further and the exemption amount decreases in 2026 or sooner. 


Please contact us if you would like to discuss the foregoing in greater detail.

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