Gift and estate tax questions

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Afty
Posts: 808
Joined: Sun Sep 07, 2014 5:31 pm

Gift and estate tax questions

Post by Afty » Mon Jan 22, 2018 2:50 am

I was thinking about gift and estate taxes, and had a couple of questions.

1) Gifting money beyond the annual exclusion is ok up to the lifetime exclusion. If you go beyond that, then you pay gift tax. What if the lifetime exclusion decreases so that some of your previous gifts were over the new limit? Presumably you can’t retroactively owe taxes on gift in prior years?

2) Suppose you gift money over your lifetime below the current lifetime limit, and the the lifetime limit decreases and you pass away. I would guess that then all of your estate would be subject to estate tax?

Leesbro63
Posts: 5474
Joined: Mon Nov 08, 2010 4:36 pm

Re: Gift and estate tax questions

Post by Leesbro63 » Mon Jan 22, 2018 7:31 am

I believe the short answers are:

1. The tax man is sadly outta luck

2. You are sadly outta luck.

Wealthy people (single individuals worth over $11M) with net worths under about $30M (my guess, double all that for couples) are going to have a tough decision in 2025, assuming no extension of current estate tax rules. Gift about $11M immediately or cost your heirs about an extra $2.5M in Federal Estate Tax later.

For what it’s worth, Yankees owner George Steinbrenner died in zero estate tax year of 2010 and his heirs paid zero estate tax on his mega wealthy estate. When the estate tax came back in 2011, the tax man was sadly outta luck. There is no “clawback” of money saved from previously more generous rules that later become less generous (to the taxpayer)

Lastrun
Posts: 114
Joined: Wed May 03, 2017 6:46 pm

Re: Gift and estate tax questions

Post by Lastrun » Mon Jan 22, 2018 9:40 am

Leesbro63 wrote:
Mon Jan 22, 2018 7:31 am
There is no “clawback” of money saved from previously more generous rules that later become less generous (to the taxpayer)
We'll have to agree to disagree on this one. I think your answer is right, but IMHO the only real limitation on retroactive taxation is the political process. See e.g. US v. Carlton 512 U.S. 26 (1994). (involving retroactivity with respect to an estate tax deduction). There is a lot more to this issue, but ultimately the power of Congress to tax is plenary.

Leesbro63
Posts: 5474
Joined: Mon Nov 08, 2010 4:36 pm

Re: Gift and estate tax questions

Post by Leesbro63 » Mon Jan 22, 2018 11:22 am

Lastrun wrote:
Mon Jan 22, 2018 9:40 am
Leesbro63 wrote:
Mon Jan 22, 2018 7:31 am
There is no “clawback” of money saved from previously more generous rules that later become less generous (to the taxpayer)
We'll have to agree to disagree on this one. I think your answer is right, but IMHO the only real limitation on retroactive taxation is the political process. See e.g. US v. Carlton 512 U.S. 26 (1994). (involving retroactivity with respect to an estate tax deduction). There is a lot more to this issue, but ultimately the power of Congress to tax is plenary.
Agreed that anything can, will and does happen in politics, and we've seen stuff we've never expected. That being said, if I had $22M, I'd be comfortable with the notion that using up the current $11+Million per person/$22M+ per couple estate and gift tax exemption won't get taxed retroactively if the current law remains in 2025.

themesrob
Posts: 176
Joined: Fri Jul 15, 2016 1:58 pm

Re: Gift and estate tax questions

Post by themesrob » Mon Jan 22, 2018 11:24 am

1. I think the answer would depend on the circumstances of the change. It's quite possible that any overage would be added to the value of the estate at the end of gifter's life, and be subject to taxation (even though it was distributed x years earlier).

2. Yes, the gifter's estate would then be entirely taxable (and, again, possibly any overage). Both of these could be subject to exceptions carved out in the amended law, of course.

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