National Association of Estate Planners and Councils

February, 2020 Newsletter
Provided by Leimberg Information Services

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Mike Jones and DeeAnn Thompson – Final Regulations Governing Deceased Spousal Unused Exclusion Amount and the Basic Exclusion Amount


A "unified credit" against federal estate or gift taxes is available under Internal Revenue Code Sections 2010 and 2505, respectively. The amount of the unified credit is equal to the tax on the donor's or decedent's own applicable exclusion amount, referred to as the "basic exclusion amount" (BEA). Ignoring inflation adjustments, the BEA was $5 million before 2018. Beginning with 2019, the BEA became $10 million, but will return to $5 million after 2025. The estate tax credit cannot exceed the estate tax. In addition, the unused amount of a deceased spouse's exclusion ("DSUE") amount may be ported to the decedent's surviving spouse by making an election.

Final Treasury Regulations governing BEA have been issued. There will be no so-called clawback of presently-enhanced BEA used to shelter gifts from gift tax when the donor dies after 2025. In other words, a gift sheltered by BEA will continue to be sheltered, regardless of whether the donor dies after 2025. The preamble observes that Congress granted Treasury regulatory authority to insure that there will be no imposition of estate tax on inter vivos gifts that were sheltered from gift tax by the increased BEA in effect at the time when gifts are made.

The new rules include DSUE provisions. The key part of this ruling limits the applicable exclusion amount for a surviving spouse who dies after 2025 to $10 million, comprised of the surviving spouse's $5 million BEA and the deceased spouse's DSUE. The regulations also provide an ordering rule: DSUE ported to the surviving spouse must first be fully absorbed by the surviving spouse's lifetime gifts before the surviving spouse's lifetime gifts may be sheltered by the surviving spouse's own BEA. Thus, this ordering rule tends to place BEA in excess of $5 million at risk.

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