Under the federal tax law enacted in 2017, the amount of each person’s federal estate and gift tax exemption was increased to $11.4 million in 2019 (and scheduled to increase annually for inflation through 2025). This exemption amount applies to the total taxable gifts made during an individual’s lifetime and the value of the property transferred at death to someone other than a spouse or charity. Once the gifts and/or transfers at death exceed $11.4 million, a federal tax of 40% will be imposed on the amount exceeding $11.4 million. This “enhanced” gift and estate tax exemption amount of $11.4 million per person only lasts through December 31, 2025; that is, it “sunsets.” Beginning January 1, 2026, the federal combined gift and estate tax exemption will go back to $5 million, indexed for inflation. Individuals using the increased exemption amount prior to 2026 can take comfort. The Internal Revenue Service has issued a directive making clear that gifts made between now and December 31, 2025, totaling no more than the higher exemption amount will not be subject to additional gift and estate taxes after the federal exemption is reduced in 2026.

Originally published in Lloyd Harbor Life - February 2019.