IRS Confirms No “Claw Backs” on Estate Gifting After Current Policy Expires in 2025 

The Treasury Department and the Internal Revenue Service issued final regulations confirming that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. Treasury Decision 9884 implements changes made by the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017.

No “Claw Backs” After Policy Expiration
The regulations make clear that the federal estate/gift/GST exemptions of $11.58 million per individual and $23.16 million per couple with spousal portability (new 2020 exemptions announced in Rev. Proc. 2019-44) can be fully utilized without taxpayers fearing a “claw back” if the exemptions revert back to pre-Tax Cuts and Jobs Act levels after current policy is scheduled to expire December 2025.

Family businesses planning for succession can now transfer up to the maximum exemption amounts until 2025 without fearing a large tax bill if the estate/gift/GST exemptions aren’t extended before 2026. If a taxpayer gifted $10 million in 2018 when the exemption was $11.18 million per individual and died in 2026 when the exemption reverted back to $5.49 million per individual, there was a question as to whether that taxpayer would be required to pay a “claw back” 40% tax a portion of the amount already transferred tax free.

Increased Certainty for Generational Business Transition
The resolution of this issue provides more certainty for businesses working towards transitioning to the next generation of ownership. Many family forest landowners represent several large multi-generational family businesses, and the resolution of this issue represents is one less hurdle family businesses must face in continuing on to the next generation of ownership. FLA is encouraged to see the Treasury Department prioritizing regulations important to family owned and operated businesses.

During a time when many Democratic candidates for President are calling for a top death tax rate of 75% or higher we welcome this positive news on the estate tax.