As some of you may be aware, the amount of money you can pass at your death has seen a lot of ups and downs in the past few decades. In 2018, the amount was doubled from $5 million to $11.4 million per person ($11.5 million in 2020). The tradeoff is that the amount is scheduled to go back to $5 million in 2026.
So, a smart estate planning strategy might involve making gifts during the next 5 years while this exemption amount is at record highs. Those gifts can be made tax-free now and “deducted” from the lifetime exemption when you die. However, many taxpayers have worried about what would happen if they make gifts during the next five years, but die after 2026 (when the exemption might be much lower).
The IRS recently finalized rules to ease these concerns:
- Gifts made through 2025 will not be subject to future (possible much lower) estate tax limits.
- An estate will be allowed to choose either the higher exclusion in effect when the gifts were made, or the exclusion in effect at the date of death.
- If one spouse dies without using all of his tax-free amount, his spouse can use the balance, even if that second spouse dies after the exemption amount has decreased.
And please remember, even without this clarification, a taxpayer can still gift $15,000 per recipient per year without incurring any gift tax. If you have questions about making lifetime gifts, or other estate planning issues, please call us.