Final Anti-Clawback Regulations Issued

December 13, 2019

By Karen Goldberg

On November 22, the IRS released the final anti-clawback regulations.  These rules govern a taxpayer’s use of the doubled basic exclusion amount (“BEA”) for gifts, and provide that lifetime gifts that take advantage of the increased BEA will not be “clawed back” into the  taxpayer’s estate if the BEA is lower at the taxpayer’s death.  Essentially, the shortfall between the BEA when the gift is made and the BEA at death won’t be taxable in the taxpayer’s estate.  

Currently, the BEA is $10 million, indexed for inflation annually ($11.4 million in 2019 and $11.58 million in 2020), and twice that for married couples.  However, this exclusion is scheduled to revert back to the much lower original exclusion ($5 million, as indexed for inflation) in 2026; it could also go lower before then, depending on the political landscape.  The final regulations, which confirm the proposed regulations issued last year, are good news for the wealthy, many of whom could die when the BEA is less. 

Taxpayers should keep in mind that unless they use their entire $10+ million BEA while it is available, they will not be able to take advantage of the increased exclusion.  This is because the original $5 million inflation-adjusted exclusion is deemed to be used before the temporary BEA increase. Accordingly, this enhanced BEA is a use-it or lose-it proposition.

It is noteworthy that the final regulations clarify what happens if a surviving spouse with deceased spousal unused exclusion (“DSUE”), from a predeceased spouse who died while the BEA is doubled, dies after 2026 when the BEA is less.  The DSUE amount doesn’t change; it is the predeceased spouse’s BEA in effect at the time his or her death, rather than the BEA in effect at the death of the surviving spouse.

About Karen L. Goldberg

Karen L. Goldberg in the Personal Wealth Advisors Group leads the trust and estate practice in the New York office. Karen specializes in estate planning for closely held business owners, senior corporate executives and other high net worth individuals.