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Now is the Time to Review your Estate Plan to Consider Possible Substantial Gifting

By Cheryl Prout, Anthony Duffy, Cynthia Turoski, on February 13th, 2019

The 2017 Tax Cuts and Jobs Act has set the basic exclusion amount for those dying and gifts made between January 1, 2018 and December 31, 2025 to $10 million (before considering the upward annual adjustment for inflation). With the inflation adjustment for 2019, the exclusion will be $11.4 million per spouse. Additionally, the Generation Skipping Tax (GST) is also $11.4 million (which is important since you cannot pass any unused GST exemption on to your spouse). However, unless new legislation is enacted, as of January 1, 2026, these exemptions will sunset and the basic exclusion amount will revert back to $5 million, as adjusted for inflation. Concerns exist about the possibility that the Act could be changed even sooner than December 31, 2025 expiration date depending on newly proposed laws.

Since Tax Reform was passed in late 2017, tax professionals have voiced their concerns regarding the tax treatment of gifts completed during the time periods when the current heightened exclusion amount is in effect. Specifically, the main concern is whether estate tax, for an individual dying after December 31, 2025, will be imposed on the gifts that were sheltered from gift tax by this increased exclusion amount.

Proposed Regulations have been issued by the IRS that if finalized would have the effect of removing that uncertainty and allowing taxpayers to continue to engage in substantial estate planning gift transactions without the risk of a potential reduction in benefit of these gifts for tax purposes. The proposed regulations provide that a taxpayer’s estate may utilize either the basic exclusion amount at the time when gifts were made or the exclusion amount in effect at the time of the taxpayer’s death, whichever is higher, when calculating estate tax.

Additionally, for New York residents, the New York estate tax exemption has risen to $5,740,000 per person. Therefore, since there is no New York gift tax as of January 1, 2019, taxable gifts made within three years of death are no longer added to a New York resident’s estate for estate tax purposes.

In summary, Federal proposed regulations provide that gifting will not be subject to potentially adverse tax laws at a later time when the basic exclusion amount is lower than it is at the time of the gift. Therefore, now is the time to review your existing wills and estate plan and consider with your tax and legal advisors how substantial gifting may be incorporated before the current taxpayer-friendly laws sunset or are changed. These favorable legislative developments and current market conditions create a window of opportunity for gifting and other estate planning strategies to permanently remove assets from the future Federal and New York estate tax.

Remember that with some planning and care, significant entity values can be positioned to fit into the current exemption amounts. Please do not hesitate to contact us so that we can review these matters with you in detail and assist you in your estate planning and asset transferring decisions.

Since the time this article was written, the governor has released his proposed budget for the new year and it contains a provision to extend the three year look back for gifts to decedents dying before 2026. The provision would be retroactive to 1/1/19 if passed.

Cindi Turoski is a managing member of Bonadio Wealth Advisors based out of our Albany, NY office.

Cheryl Prout is a partner based out of our Buffalo, NY office.

Anthony Duffy is the managing director of ValuQuest based out of our Albany, NY office.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Cheryl Prout June 21 2021 07 21 201921
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Anthony Duffy
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