Final Regulations Confirm No Clawback On Gifting

With the gift/estate tax exemption of $11,580,000 (in 2020) set to expire or "sunset" on December 31, 2025, many advisors have encouraged high net worth clients to make large taxable gifts and "use up" their gift tax exemption during lifetime and shelter future income and appreciation in the gifted assets from estate tax at death. However, some advisors have expressed concern that making a large gift and using the current exemption may trigger additional transfer tax if the estate tax exemption is reduced in the future, effectively allowing the IRS to "claw back" the used exemption in excess of the estate tax exemption in effect at the taxpayer's death.

On November 22, 2019, the IRS issued final regulations confirming that used gift tax exemption will not be "clawed back" upon a taxpayer's death, even if the taxpayer made gifts in excess of the estate tax exemption ultimately in effect at the taxpayer's death. Further, a surviving spouse who received unused estate