Changes to inheritance tax might not lead to IRS clawback

by | Nov 29, 2018 | Estate Administration |

Recent posts have discussed how the changes to the tax laws under the Trump Administration could affect people who are seeking to avoid the inheritance tax and make sure their wealth protection strategies stand the test of time. A concern for many has been whether the Internal Revenue Service will seek to get some of the lost taxes back when the changes expire in 2025. New information indicates that the IRS has no intention to do that and it could be important as to how people go about preparing their estate plans.

For those with significant wealth, the idea of simply gifting assets to heirs while there is a temporary reprieve from onerous tax implications for doing so might have seemed like a short-term solution that would later need to be recovered. However, a proposal from the IRS says that the doubling of the individual limit to $11.2 million and the limit to a married couple to $22.4 million will not result in a so-called “clawback” at its 2025 expiration.

There will be an increase in the thresholds in the coming years and if people who are thinking about how to benefit their heirs with this opening are concerned about that clawback, that worry could be assuaged by the allusions on the part of the IRS that it will not be done. For those who go beyond the threshold, there is an approximately 40 percent tax. Estate planners had been concerned about 2026 and if gifts would suddenly require retroactive taxes. The IRS says this is not in their plans. This does not alter the limit of $15,000 in individual gifts on an annual basis. Still, there will be a hearing in March 2019. Those who are thinking about how best to take advantage of this opening should be cognizant of how that is addressed.

For people with substantial assets who are preparing their estate plan and how to dole out assets to loved ones, this is a legitimate concern that cannot be emphasized enough. Having legal advice on how estate administration will be impacted by the current changes and possible future decisions by the IRS is vital. A law firm that specializes in estate planning in all its aspects should be spoken to so full preparations can be made.