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Lifetime Tax Exemptions Are Safe for Life


The unified federal estate and gift tax exemption is currently at a stratospheric $11,180,000, and will increase to $11,800,000 in 2019. That means that an individual can give away or transfer on death up to $11,180,000 in wealth without incurring the federal estate or gift tax. This is a lifetime exemption, meaning a person has her life in which to take advantage of it.

Or does she? That’s the question that has been causing the ultra-wealthy (actually, more likely their tax advisers) to lie awake at night. The current version of the estate and gift tax exemption is set to “sunset” in 2025. At that time, the exemption will revert to $5,000,000, adjusted for inflation. The question is, what happens if a person transfers more than $5,000,000 before 2025. On January 1, 2026, will the tax collector be knocking at the door with a bill for a gift tax on the excess above $5,000,000? Or if the person transfers more than $5,000,000 prior to 2025 and then dies, will his estate be hit with a tax on the excess?

The IRS has published new regulations that answer this question, and the answer is “no.” Gifts made up to the maximum allowed under current law will qualify for exemption for estate and gift tax when the law sunsets in 2025. As with all things tax-related these regulations are subject to change. It’s not likely that the IRS will change its regulations; but Congress, which can’t seem to break itself of the habit of tinkering with the tax code, especially estate and gift taxes, could enact legislation that overrides the regulations. While that isn’t likely, it isn’t completely unrealistic, either.

The new regulations mean that if a taxpayer is in the realm of wealth that the difference between a $5 million and an $11.2 million exemption creates tax issues, she should act before 2025 to take advantage of the higher exemption. There are several options available to allow taxpayers to take advantage of the estate and gift tax exemption and still maintain the use of the asset given during life.


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