You Can Give Big and Still Save Big on Taxes

By Alan Olsen
You Can Give Big and Still Save Big on Taxes

Many people enjoy passing on their assets to their loved ones or donating money to charitable causes. This is a noble way to share the wealth. And it’s a win-win situation for everyone involved. Many of the nation’s wealthiest individuals are among the most charitable givers. They also like to take care of their families after they are gone. However, when it comes to donating assets to a good cause, there are some tax issues that can arise. This is especially true with the new Tax Cut and Jobs Act (TCJA) now in place.

Gift Threshold Amount More Than Doubled

Under the old law, you could give away up to $5 million over your lifetime and receive a tax deductionon that money. That sounds like a lot. But under the TCJA that number hasmore than doubled. But there is a catch. It won’t last forever. Under the new law, the gift and estate tax exemption has been raised to $11.18 million per person. However, that will run out in 2025, and revert back to the previous amount of $5 million. But let’s focus on the here and now.

What About a Claw-Back Policy?

The new law means that every individual can transfer up to $11.18 million in the form of gifts or inheritance without facing the 40 percent gift or estate tax. That is a huge benefit for wealthy individuals and families that want to donate gifts to family members and charities. However,there is one lingering question hanging over this whole idea. What happens in 2025 when the amount drops back to $5 million? How will this affect those who have donated more than $5 million but die after 2025?

"Many people are concerned about having a claw-back," said Andrew M. Katzenstein, partner in the private client services department at Proskauer Rose in Los Angeles. "They're thinking about what kind of planning they should do if they make big gifts and die whenthe exemption is down. Will Congress say that you made an $11 million gift, but now it's $5 million, so that $6 million gets clawed back?" Unfortunately, at this point no one knows the answer to that question.

Still A Good Time to Donate

Despite the uncertainty, Katzenstein says wealthy families should take advantage of this opportunity while they can. The reason is those gifts, especially those assets that appreciate rapidly, won’t be a part of your estate. Therefore, even if the IRS does implement a claw-back policy, the agency can “only take back the gifted assets up to the amount of exemption that is no longer available,” according to Katzenstein. Any growth from those assets will still be outside of your estate and they will not be subject to the 40 percent tax. So, if you have millions of dollars you want to give to family or to a charitable cause then now is a good time to make it happen. If you wait till after 2025 the amount you can donate tax-free will be much smaller.