The IRS recently announced new proposed regulations that could affect the “anti-clawback” rule, which preserves the benefit of the higher gift/estate tax exemption thresholds for individuals who make lifetime gifts prior to 2026, when the exemption is set to be lowered.

In 2017, the Tax Cuts and Jobs Act (TCJA) temporarily increased the exemption from gift and estate tax to $10,000,000 per person (adjusted annually for inflation). As part of the bill, the exemption was slated to “sunset” back to pre-TCJA levels ($5,000,000 per person, adjusted annually for inflation) effective year 2026.  The bill led to a number of questions among taxpayers and advisors, including what happens if you make a $10,000,000 gift now while the exemption is high, but pass away when the exemption reverts back to lower levels?

In 2019, the IRS issued clarifying regulations. In such cases, the decedent would receive the benefit of the higher exemption to the extent such exemption was utilized during the decedent's lifetime while the exemption was higher. In other words, taxpayers had to “use it or lose it,” and to the extent the heightened exemption was used, the IRS would not later claw the benefit back.

On April 26 of this year, the IRS issued a new round of proposed regulations clarifying that the “anti-clawback rule” is not applicable in certain situations. Specifically, if a decedent makes completed lifetime gifts which were still includable in the decedent's taxable estate, they will not be deemed to have locked in the benefit of the higher exemption. Though this may seem concerning to some who recently made large gifts, these new proposed regulations would be applicable only in a limited number of situations, including:

Planning for the future can be a scary and sometimes overwhelming process. However, it's a necessary part of ensuring that you are taking care of your loved ones.

Depending on your stage of life, you may be planning for children and considering the costs of raising a child; or you may already have children and are thinking about the level of financial support you can provide them after you pass away. Regardless, the best way to plan for the future is by taking a look at your family situation and identifying potential risks. If you have children with special needs, there are some specific steps you'll want to consider.

This can vary from hiring caregivers to creating a network of support made up of family and friends.

If something happens to you or your spouse, you want to make sure there is a plan in place to preserve your child's benefits eligibility. Your estate planning attorney can work with you to secure these benefits, which include:

Additional steps you can take include protecting your financial assets and deciding on which type of Trust to Consider for your special needs child.

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