Ca. Tax Lawyer OCTOBER 2018, VOLUME 27, NUMBER 3

An Uncertain Future: How the Potential Clawback Muddies the Estate and Gift Tax Waters1

By Robin L. Klomparens and Kristin N. Capritto2


The Tax Cuts and Jobs Act3 (the "Act") was signed by the president on December 22, 2017. Despite simplification of the tax code being one of the Act’s stated purposes, many of its provisions add complexity and ambiguity for both practitioners and taxpayers. This is particularly evident with respect to the Act’s changes to the estate and gift tax scheme. Thus, clarification on several issues would be helpful. This includes the potential for additional estate tax due because of lifetime gifts made by the donor.

Specifically, the possible sunset in 2026 of the increased estate and gift tax exemption amount leads to uncertainty and insecurity that the possibility that a gift previously made by a decedent will be "clawed back" into his or her estate if death occurs in a year in which the exemption amount is less than it was in the year the gift was made. Conversely, a concern for practitioners and taxpayers involves the loss of a credit against estate tax on a donee’s death with respect to previous gift tax paid by the donor during his or her lifetime when exemption amounts are increasing. Additional issues arise relative to the ordering of credit amount used—if an individual makes a gift in a year with a higher credit amount and then the credit amount subsequently decreases, does that individual still have unified credit remaining? The answer depends on whether the credit amount is reduced from the top down or the bottom up.

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