Under the Tax Cuts and Jobs Act (TCJA), the federal exclusion for estate taxes increased from $5.49 million in 2017 to $10 million, indexed for inflation, for estates of decedents dying after December 31, 2017. The exclusion for 2020 will be $11.58 million. However, these exclusion amounts will revert back to prior law once the TCJA provisions expire after December 31, 2025.
The amount of estate tax owed at a person’s death takes into account the amount of taxable gifts during the decedent’s life and the taxable estate at the decedent’s death. If a person made gifts based upon the increased exemption amount in 2020 of $11.58 million, there was potential for the IRS to retroactively deny the increased exemption amount if the person died after 2025, and cause estate taxes to be owed upon their death.
The IRS recently finalized Regulations allowing individuals to make taxable gifts between January 1, 2018 and December 31, 2025 based on the increased exemption amount even where the individual dies after the estate tax exemption reverts to the lower exemption amount in 2026.
This Regulation finalized by the IRS may allow for some unique opportunities in your estate plan. However, the Illinois exclusion is still $4 million.