The Lifetime Exemption – Updated with Melissa Chauvin

Question: I took advantage of the increased lifetime exemption amount but heard that it will revert back to a lower amount – now what?

Answer: Under the Tax Cuts and Jobs Act (TCJA) passed at the end of 2017, the basic exclusion for estate and gift tax was increased to $10 million, indexed for inflation after 2011, for individuals dying after 12/31/2017 and before 1/1/2026. The increased amount is set to revert back to $5 million for gifts made and estates of individiuals dying after 12/31/2025. With the increased amount being temporary, the IRS has finalized regulations to prevent a “clawback” of the applicable exclusion amount. The anti- clawback regulations allow the exclusion amount to be the greater of the two amounts for individuals dying after 12/31/2025 who made gifts under the higher exclusion amount.

Example: Taxpayer made post-1976 taxable gifts of $9 million when the exclusion amount was $10 million. Taxpayer dies 3/1/2026 when the exclusion amount is $5 million. Under the anti- clawback regulations, the IRS would allow a basic exclusion amount for the taxpayer’s estate of $9 million.

The anti-clawback regulations apply to estates of individuals dying after November 26, 2019 (the date the regulations were published as final), but may also be applied to estates of individuals dying after December 31, 2017 and before November 26, 2019.

For additional information on the increased exemption, the anti-clawback regulations, and your estate planning questions, please contact one of our tax professionals for assistance. Unclaw yourself – give us a ring!