An Analysis of the 2019 Estate and Gift Tax Rules

Let’s look at and analyze the 2019 gift and estate tax rules. First, the basics: the gifting annual exclusion amount remained at $15,000 for 2019, and the gift and estate tax exclusion amount increased from $11.18 million in 2018 to $11.4 million in 2019.

Now let’s take a closer look at these. Regarding the $15,000 annual exclusion amount, it’s worth noting in any discussion regarding gifting, that if a person (donor) makes a gift in excess of $15,000 in a calendar year, the tax consequence is that the donor must file a gift tax return (IRS Form 709) showing that part of the gift and estate tax exclusion amount was used. In almost every “taxable gift,” no tax is due. The gift merely needs to be reported. And it’s worth noting that married couples can each give $15,000 without any gift tax reporting requirement, which further means that married couples can donate $30,000 to as many individuals as they want, each year, without being required to report the gift on a gift tax return.

Regarding the gift and estate tax exclusion amount, note similarly that each spouse has an exclusion amount of $11.4 million for 2019. In theory, the married couple can exclude assets valued at $22.8 million from the 40% estate tax.

It’s worth noting that the estate tax law, in its current form, is scheduled to “sunset” after 2025. Absent Congressional action, the exclusion amount reverts back to $5 million, adjusted for inflation, in 2026.

There is concern from some about the potential for clawback of lifetime gifts. Specifically, the sunset of the higher exclusion amount could deny estates of individuals who die after 2025 the full benefit of the higher exclusion amount applied to previous large gifts.

Recently, the IRS proposed regulations to resolve this issue. The example they gave was of a taxpayer who made gifts taxable gifts of $9 million prior to 2026, and then died during or after 2026, when the gift and estate tax exclusion amount was less than $9 million. The proposed regulations of the IRS state that the credit amount against estate tax will be based on the higher $9 million amount rather than the lesser amount that may be in effect after 2025.

Note that we still have portability (which makes it easier for married couples to get the full utilization of two estate tax exemptions), step-up in basis for capital gains tax purposes, and gifts in excess of $15,000 still must be reported even though typically no gift tax is due.

Happy New Year!

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

Phone: (225) 329-2450