Federal Gift, Estate and Generation Skipping taxes have long been subject to a unified exemption. Transfers are cumulative. A gift tax return must be filed reporting the cumulative transfers and exemption consumed from prior and the current year returns. Tax is imposed on the amount which exceeds the exemption. There are exceptions, such as the annual gift tax exclusion (presently $15,000), but that’s the gist of it.

The Tax Cuts and Jobs Acts of 2017 doubled this exemption. In 2019, the exemption is $11,400,000 and will adjust upward each year for inflation. However, the Tax Act also provides that the doubled exemption is temporary and will return to prior levels on January 26, 2026 (to the 2017 exemption level of $5,430,000, adjusted for inflation since then).

The exemption and the unlimited marital deduction are the primary shelters from the federal gift and estate tax, beyond which the tax applies at a flat 40% rate.

The scheduled halving of the exemption in 2026 to its prior level complicates planning for some of our clients. So too, does the possibility of a transfer in the control of Congress and the White House which might uproot the current tax regime altogether and replace it with something entirely new.

We encourage our clients to plan for themselves and their families against the backdrop of their circumstances and the tax laws that exist today, but also to remain alert to changes which may warrant a review and revision of their plans.

In months ahead, we will discuss further topics including: (i) the Connecticut Estate and Gift Tax; (ii) gifting opportunities which do not require gift tax returns or consume the exemption; and (iii) the Connecticut Probate system.