Estate Taxes Could Ensnare Trusts Favored By Wealthy

October 26, 2021

Two current tax proposals target key points of most wealthy clients’ estate plans. One’s getting all the headlines, but the other should get more attention.

The first focuses on whether a taxpayer who uses their $11.7 million federal exemption from gift and estate tax this year can keep that amount if he or she dies after this exemption drops to pre-2017 levels. That drop could come either through proposed legislation soon or in 2026, the sunset year under the Tax Cuts and Jobs Act.

“A prior regulation released by Treasury shielded taxpayers from such clawbacks, but Treasury reserved the ability to issue additional guidance regarding certain gift transactions seen as abusive. It seems that Treasury is now looking to issue such additional guidance,” said Tara Thompson Popernik, director of research at Bernstein Private Wealth Management in New York.

The IRS has said there will be no clawback but hasn’t closed the door on the possibility. Still, “the effect of a potential clawback should be quite limited,” said Neil V. Carbone, partner at Farrell Fritz, P.C., in New York.

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  • Related Practice Areas: Estate Litigation, Trusts & Estates
  • Featured Attorneys: Neil V. Carbone
  • Publications: Financial Advisor Magazine