Client Update September 2019

As we begin to enter the brisk days of fall, we wanted to provide you with a summary of recent estate and gift tax developments.  While many are aware of the Tax Cuts and Jobs Act (the “TCJA”) that was signed into law in December 2017, there have also been other significant developments that we want to highlight for you.

 

FEDERAL ESTATE AND GIFT TAX

Temporary Increase in Personal Gift and Estate Tax Exemption

The TCJA temporarily doubled the personal gift and estate tax exemption amount from 2017 levels, beginning in 2018.  This increased exemption will be adjusted annually to account for inflation until January 1, 2026, when it is scheduled to sunset and return to 2017 levels as adjusted for inflation.  For 2019, the exemption amount is $11.4 million. 

 

As a result, fewer estates will be subject to the federal estate tax during this time period.  In addition, the TCJA continues to allow a surviving spouse to save a deceased spouse’s unused federal estate and gift tax exemption for use at the survivor’s later death, meaning that the personal exemption can be as much as $22.8 million for a surviving spouse. 

 

No “Clawback” on Gifts Made During Increased Exemption Period

One of the big questions arising after passage of the TCJA was how it would impact individuals who make gifts during the increased exemption period, if and when the exemption goes back down in 2026.  The IRS recently issued proposed regulations stating that there will be no “clawback” of gifts made during the increased exemption period after it expires.  As a result, gifts that were exempt from gift tax because of the increased exemption in the TCJA will not be taxed at a later date when the increased exemption sunsets.  This addresses the concerns of people who would like to make gifts now, but fear that it would subject their future estate to increased estate taxes if they die after 2025.  Although these regulations must still be finalized, they should provide relief to individuals who would like to take advantage of the increased exemption by making gifts now. 

 

Annual Gift Tax Exclusion Remains the Same in 2019

The annual gift tax exclusion, which is periodically adjusted for inflation, is $15,000 in 2019.  An individual may gift up to $15,000 per person (or $30,000 if married) this year without triggering a gift tax or using up a portion of his or her personal exemption.  Note that married couples who make joint gifts may still need to file a Gift Tax Return, even if no tax is due.

 

CONNECTICUT ESTATE TAX AND PLANNING

Increase in Connecticut Estate and Gift Tax Exemption for 2019

Connecticut also made changes to its estate and gift tax exemptions, introducing graduated increases beginning in 2018.  In 2019, the Connecticut estate and gift tax exemption is $3.6 million.  The change to Connecticut’s exemptions pre-dated the TCJA and there was uncertainty as to whether Connecticut would match the Federal exemption in effect in 2017 or the current increased Federal exemption.  That question has now been clarified in a favorable way and the Connecticut exemption is slated to match the Federal exemption in 2023, with gradual increases each year as follows:

 

Year

Exemption Amount

2019

$3.6 million

2020

$5.1 million

2021

$7.1 million

2022

$9.1 million


The above material is not intended to promote, market or recommend any matter or transaction addressed above. It is provided for informational purposes only and does not constitute legal advice. This communication may be deemed advertising under applicable state laws.