The IRS has cleared away uncertainty for wealthy taxpayers and their financial advisors when it comes to estate and gift taxes.
Final regulations from the agency make clear taxpayers can benefit from the temporarily increased estate and gift tax exemption even if they die after the increase expires in 2026.
The rules, announced Friday, implement changes required by the 2017 tax overhaul.
The law doubled the estate and gift tax basic exclusion amount (BEA) – from $5 million to $10 million, adjusted for inflation — for tax years 2018 through 2025. This year the exclusion is $11.4 million. In 2026, it will revert to the 2017 level of $5 million, as adjusted for inflation.
The BEA is used to determine the amount of assets taxpayers can gift during their lifetimes tax free. Any unused amount can be used as a credit to reduce or eliminate estate taxes when they die.
Concerns had arisen about taxpayers who take advantage of the temporarily increased exclusion by making large gifts but then die after the BEA returns to lower levels. Would taxes on their estates be calculated using the lower BEA?
But the IRS says “the final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.”