New tax laws with new exemptions mean that some people will no longer have their estates subject to the estate tax and others can gift more.

Under the recently passed tax laws, exemptions are scheduled to sunset in 2026 and revert back to $5.5 million for individuals. That creates a potential problem for people with gifting programs who want to take advantage of the higher exemptions.

For example, if someone makes total lifetime gifts of $8 million before 2026, it is not clear what the IRS will do, according to Wealth Management in “Clawback Under the New Tax Law: Part 2.”

Congress left it up to the IRS to determine through regulations whether the excessive gift amounts should be clawed back or allowed. It appears that Congress intended for the IRS to allow such gifts through a reading of the legislative history of the tax cuts. However, it is not known whether the IRS agrees with that assessment.

Whatever the IRS decides to do there will likely be court challenges to their actions. A definitive answer to what will happen is unlikely to come anytime soon. That means those who utilize the new law to give lifetime gifts in excess of $5.5 million, are taking on some risk in doing so.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, including the best way to carry out gifting.

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Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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