The recently concluded 53rd Annual Heckerling Institute on Estate Planning conference focused on the seismic shift in the estate-planning landscape, brought about by the dramatic temporary expansion of the federal, estate, gift and generation-skipping transfer (GST) tax exemptions.
Here are some of the highlights of what was discussed.
The 2017 Tax Reform Act
On Dec. 20, 2017, Congress passed far-reaching changes to the Internal Revenue Code, known as the Tax Cuts and Jobs Act (the Act). The Act provides significant estate-planning opportunities for high-net-worth individuals to take advantage of a temporary doubling from $5 million to $10 million (subject to indexing) of the estate, gift and GST tax exemptions. This temporary doubling of the federal estate, gift and GST tax exemptions (as indexed) from $5.49 million in 2017 to $11.4 million per person (and to $22.8 million for a married couple) as of Jan. 1, 2019 creates both: (1) a window of opportunity for gifting due to the significant expansion of federal gift and GST tax exemptions, and (2) a need to review existing wills and other estate- planning documents to ensure that they continue to carry out planning objectives.
There’s a significant wrinkle in the Act, however, as it sunsets its doubling of the federal estate, gift and GST tax exemptions on Jan. 1, 2026, reverting to their pre-2018 exemption levels, as indexed for inflation. This will create incentive for wealthy individuals to begin to use their increased exemptions at the risk of losing them come 2026.
There had been some concern that the sunset provisions of the Act could potentially pose a clawback risk if an individual were to gift away his entire gift tax exemption during his lifetime and then die after Dec. 31, 2025, when the unified estate and gift tax exemption was less than the amount that the individual had gifted away during her lifetime. The U.S. Department of Treasury has now issued guidance in the form of proposed regulations, referred to by many as the “Anti-Clawback Regulations,” to clarify that this no longer poses a risk.