No "Claw-back" of Large Gifts Made Prior to 2025

For transfer tax purposes, the IRS has released guidance confirming that taxpayers can make large gifts from 2018-2025 (when the expanded $11.4 million-per person transfer tax exemption is in place) without fear of any kind of “clawback” if the client dies in a later year, when the exemption is lower.   This means that taxpayers can use the entire $22.8 million per-married-couple transfer tax exemption between 2019 and 2025 without any fear that they will be subject to transfer tax liability for those gifts in later years.

The 2017 tax act doubled the basic exclusion amount (essentially, the amount that can be transferred free of estate, gift, or generation-skipping transfer taxes) from $5 million to $10 million for transfers made after 2017 and before 2026.  The exclusion amounts are adjusted for inflation and assets exceeding the exclusion amount are subject to up to a 40% estate and gift tax rate. For 2018, the inflation adjusted exclusion amount is $11.18 million and in 2019, it is $11.4 million.The exclusion amount is, however, set to revert to $5 million after 2025. 

Priya Prakash Royal, author of the Bloomberg Estate Tax Blog, correctly observed:

Of course, Congress can change the law at any time and the 2017 tax act is a political hotbed. Many taxpayers will probably wait until late in 2025 to make any drastic decisions on gifting their entire exclusion amount. However, advisers should keep their clients aware of the possible changes that could be made if the House and the Senate are both controlled by the Democrats – especially if the Democrats take over the Presidency in 2020 or 2024. This may hasten the need for clients to take advantage of the increased basic exclusion amount.