The IRS finalized the proposed regulations issued last November relating to the lifetime exemption (basic exclusion amount).  There is definitely some good news here!

In the finalized regulations, the IRS has allowed for a special rule for taxpayers who made gifts during 2018 through 2025 so their estates are not affected by the decrease in the lifetime exemption on 1/1/26. For example, if an unmarried individual made post-1976 taxable gifts of $9 million, all of which were sheltered from gift tax by the cumulative $10 million in basic exclusion amount allowable on the dates of the gifts, and the individual dies after 2025, when the basic exclusion amount is $5 million, the special rule allows the applicable credit amount against estate tax to be based on a basic exclusion amount of $9 million (Regs. Sec. 20.2010-1(c)(2)).

The final regulations also include examples illustrating how the deceased spousal unused exclusion (DSUE) amount is calculated under the clawback rules. The regulations confirm that the reference to “basic exclusion amount (BEA)” in Sec. 2010(c)(4), defining DSUE as the lesser of the BEA or the unused portion of the spouse’s applicable exclusion amount, is a reference to the BEA in effect at the time of the deceased spouse’s death, rather than the BEA in effect when the surviving spouse dies. This ensures that a DSUE amount elected during the increased BEA period will not be reduced when the increased BEA sunsets.

The anti-clawback final regulations allow taxpayers considering significant lifetime gifts more confidence in proceeding with their estate planning. We encourage you to review their existing estate plans.

Please contact Susie Keaton at 317-472-2124 if you have any questions on these regulations or how we may help preserve the larger basic exclusion amount (lifetime exemption) to consider these temporary gifting opportunities.