Gift Today Without Worrying About Tax Consequences Later

Those who have been considering making large gifts of assets, but have been hesitant due to the uncertainty around the potential sunset of current favorable tax laws, received an early holiday present from the Internal Revenue Service (IRS). On Nov. 22, 2019, the IRS issued final regulations clarifying that those who make large gifts now, and that are within the lifetime exemption amounts ($11.4 million per individual, $22.8 million for couples,) will not be subject to a “claw-back” of gifts into their taxable estates if they die when the exemption amount is lower.

Prior to these final regulations, it was possible for someone to make a large lifetime gift, only to have it later made taxable if that person was to die in a year of a new, lower exemption amount. To illustrate the point, an individual’s lifetime gift tax exemption amount in 2019 is $11.4 million, meaning that gifting less than or equal to that amount will not trigger any gift tax. However, if that individual were to die after Dec. 31, 2025, when the current tax laws are scheduled to sunset and the lifetime exemption amount reverts to $5.49 million, that would result in a portion of the gift being taxable.

With the passage of the final regulations, no estate taxes will be due in the event a lower exemption amount is applicable at death. Instead, the regulations implement an adjustment to the tax calculation. Specifically, in calculating the estate tax, the tax credit will equal the sum of the total credits used on all prior gift tax returns.

In summary, the final regulations should provide reassurance to those contemplating large lifetime gifts.  They no longer need to worry about a claw-back creating unexpected tax consequences to their estates.

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About Cresset

Cresset is an independent, award-winning multi-family office and private investment firm with more than $45 billion in assets under management (as of 04/01/2024). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.

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