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The Presidential and Congressional elections this fall could have a significant impact on Estate and Gift Taxes imposed by the federal government on transfers by individuals either by lifetime gifts or at death.

Under the 2017 Tax Cuts and Jobs Act an individual’s exclusion from transfer taxes on gifts during life and at death (these transfers are combined under federal law) was doubled to more than $11 million and tied to inflation.  Thus, currently, an individual pays federal estate tax only if the value of assets transferred during life and at death exceeds $11.58 million ($23.16 million for a married couple).  This lower estate tax is set to expire in 2025, with the exclusion being cut in half at that time.

Joe Biden has indicated that estate taxes should be increased to “historic norms” and it is possible that the current estate tax provisions set to expire in 2025 could be reset to expire in 2021.  It is also possible that the exclusion could be reset at less than 50% of the current exclusion and that the marginal estate tax rate could be increased from the current rate of 40%.  There could be changes in the manner assets are valued for estate tax purposes, the planning techniques available, and the determination of income tax basis for assets transferred.  Finally, there is also the unlikely possibility that the effective date of the rate changes could be earlier than 2021. In short, there is much uncertainty regarding how the federal estate and gift tax system may look in the near future.

In November of 2018 the IRS issued Revenue Ruling 2018-229 which grandfathers certain transfers made under current tax law.  This ruling allows those who make gifts utilizing their current exclusion to retain the benefit of this exclusion on such transfers (i.e. no “claw back” of the gift).  For example, if the exclusion amount were reduced in 2021, under this ruling a gift of $11 million in 2020 would be included in the estate of the donor only to the extent of the lower tax exclusion.  Thus, currently excluded transfers in excess of a future lower exclusion would not be taxed or clawed back under Revenue Ruling 2018-229.  (Assuming the IRS does not reverse this Ruling).

Estate tax savings could be significant if large gifts are made under the current tax system.  For example, if an individual gifts $10 million before the exclusion returns to $5 million, there would be a $2 million tax savings, at a marginal tax rate of 40% (the current rate), on the extra $5 million gifted before the decrease in the exclusion rate.

The future of our federal Estate and Gift Tax system and the possible savings associated with substantial current gifts or transfers is a complex topic, subject to many contingencies and individual and family considerations, but in these uncertain times this is a topic that individuals or couples with larger estates should carefully and thoughtfully explore.

For more information, please contact Erin Bailey at or 336-271-5264 or Brad Jacobs at or 336-271-5223.

DISCLOSURE:  Accounting, business or tax advice, if any, contained in this communication, including attachments, is not intended as a thorough analysis of specific issues, or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

© 2020 Tuggle Duggins P.A. All Rights Reserved. The purpose of this bulletin is to provide a general summary of significant legal developments. It is not intended to constitute legal advice or a recommended course of action in any given situation. It is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature. Moreover, information contained in this bulletin may have changed subsequent to its publication. This bulletin does not create an attorney-client relationship between Tuggle Duggins P.A. and the recipient. Therefore, please consult legal counsel before making any decisions or taking any action concerning the issues discussed herein.

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