The IRS announced last month that the estate and gift tax exemption will be $11.4 million per individual (up from $11.18 million) as of January 1, 2019. In other words, there is no federal estate tax for heirs of a person who is single if the estate is less than $11.4 million (and dies in 2019) or no gift tax if one gives away up to that amount assuming no gifts were previously given over the annual exclusion (which is presently $15,000 per year per person and continues for year 2019), or for the heirs of a married couple if their estate is less than $22.8 million or they can give that amount away without gift taxation (assuming they file a gift tax return and assuming they haven’t previously given away more than the annual exclusion as that excess is counted towards the amount that can be given during lifetime without gift taxation). The surviving spouse needs to make a “portability” election for the late spouse’s unused exemption when filing an estate tax return of the deceased spouse even though the surviving spouse is entitled to unlimited marital deduction whereby there is no federal estate when their spouse dies.

Very few Americans have federal estate tax worries since most do not have that large of an estate. However, the tax law (the Tax Cuts and Jobs Act), which passed at the end of last year which doubled the amount that could previously be given away in life or at death is only temporary as it expires at the end of year 2025. Since the limits are scheduled to be returned to the basic exclusion of $5 million per person adjusted for inflation in year 2026 using the Chained Consumer Price Index, this left many wondering if (1) a taxpayer gave away an amount greater than the basic exclusion (over $5 million as adjusted for inflation) in years 2018 to 2025 results in a penalty to the taxpayer or (2) a taxpayer gave away more than the exclusion prior to 2018 and had to pay a tax, would that tax be nullified because the new increased exemption.

The IRS has proposed new regulations whereby there is no clawback problem. In effect, the government will look at the time the gift is made to determine the exclusion amount.

If interested in knowing more about “Estate Planning Essentials”; consider registering for our next free workshop on Saturday, December 15, 2018 at 10:00 a.m. or on Thursday, January 10, 2019 at 1:00 p.m.

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