Client Profile

Rosa has a large estate that greatly benefitted from the federal tax changes at the end of 2017, but she worries about the tax breaks expiring and estate and gift tax exemptions reverting to 2017 levels. What should she do?

First, Rosa can worry less about the tax expiring because the IRS recently announced that taking advantage of the increased gift and estate tax basic exclusion amounts in effect since 2018 won’t result in a clawback if the exclusion amount drops back to pre-2018 levels in 2026, as scheduled.

A special rule will allow estates to compute their estate tax credit using the higher of the basic exclusion amount applicable to gifts made during life or the exclusion applicable on the date of death. This should calm Rosa’s worries.

Even with this increased certainty, Rosa might still take advantage of the annual gift tax exclusion, which in 2020 is $15,000 per donor per recipient to as many people as she would like until reaching the lifetime limit. And she should also consult a person experienced with estate planning issues.

Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.