new irs rules protect large gifts
The 2017 tax law increased the federal combined estate and gift exclusion to $11,400,000. The means that a taxpayer may make lifetime gifts and have a taxable estate of up to $11,400,000 without paying federal gift or estate tax. Lifetime gifts reduce the estate tax exclusion dollar for dollar. For example, if a taxpayer makes lifetime taxable gifts of $10,000,000, he would have a remaining estate tax exclusion of $1,400,000. On January 1, 2016, the estate and gift tax exclusion is scheduled to decrease back to the pre-2017 level of approximately $5,600,000.
It was unclear if a taxpayer would be subject to estate tax if prior to 2026 the taxpayer made gifts that exceed $5,600,000 and the taxpayer died after January 1, 2026. On November 22 the IRS issued regulations that make clear that gifts made before 2026 that exceed $5,600,000 will not cause a taxpayer to be subject to estate tax if a taxpayer dies after January 1, 2026. For example, if a taxpayer makes lifetime taxable gifts of $10,000,000 and dies on February 1, 2026, he will not pay estate tax on $4,400,000 ($10,000,000 minus $5,600,000).
The bottom line is that the temporary increase in the federal combined estate and gift tax exclusion is truly "use it or lose it."
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Mr. Hendel has been practicing wealth preservation planning for over thirty -five years.