Treasury Seeks to Protect Millionaires' Wealth Transfers
November 20 2018 - 8:40PM
Dow Jones News
By Richard Rubin and Laura Saunders
WASHINGTON -- Multimillionaires would get more flexibility to
make tax-free gifts to their heirs under a Trump administration
proposal released late Tuesday.
Under the regulation, people would have an easier time taking
advantage of the temporary increase in the gift- and estate-tax
exclusion that Congress passed last year. Before Tuesday's
proposal, some tax lawyers worried that making significant tax-free
gifts now could cause an estate-tax bill for some people dying
after the changes expire at the end of 2025.
Once the regulation becomes final, it's likely to spur a wave of
wealth transfers from people worth more than $5 million to their
children.
"This is good news for people who are considering making large
gifts before the end of 2025," said Andrew M. Katzenstein, an
estate attorney at Proskauer Rose LLP in Los Angeles who counsels
high-net-worth clients. "People are more likely to move
forward."
Americans face a lifetime limit for tax-free gifts that Congress
roughly doubled in last year's tax law. The limit, which is indexed
to inflation, is set at $11.4 million for 2019 and double that for
married couples.
Those gifts during life count toward the estate-tax limits,
which are set at the same levels. Above those levels, the gift and
estate taxes both have a top rate of 40%. Fewer than 2,000 estates,
or about 0.1% of people who die, will pay the estate tax next year,
according to the Tax Policy Center, a research group run by a
former Obama administration official.
The issue facing the Treasury and worrying wealthy Americans
cropped up because Congress set those higher exclusions to expire
at the end of 2025. Estate planners weren't sure what to tell their
clients to do.
Without these regulations, an individual who made a $10 million
tax-free gift now and then died in 2026 could face an estate-tax
bill. That's because his lifetime gifts would exceed the new, lower
estate- and gift-tax exclusions that are scheduled to be in place
at the time of death.
Under the proposed regulation, however, tax-free gifts made from
2018 through 2025 would effectively be excluded from that
estate-tax calculation.
The rule won't be effective until the government takes public
comments, holds a March 13 public hearing and makes the regulation
final.
Once that happens, wealthy individuals will likely use up as
much of their lifetime exclusion as they can, transferring money to
heirs before Congress can change the law or a new administration
can change the regulation. Senate Democrats have proposed returning
the estate tax to pre-2018 levels and Democratic presidential
candidates are likely to suggest similar changes.
"Some givers have been sitting on the fence," said John Porter,
an attorney with Baker Botts LLP in Houston who advises wealthy
individuals. "The proposed regulations provide comfort that a
clawback won't occur."
(END) Dow Jones Newswires
November 20, 2018 20:25 ET (01:25 GMT)
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