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Treasury Rule Eases Death Tax’s Sting

The Treasury Department has cleared up some uncertainty regarding Ben Franklin’s two certainties, death and taxes. New rules give assurance to the benefits of the Trump tax cuts where the Death Tax and gifts are involved.

The 2017 Tax Cuts and Jobs Act includes an increase in the amount of money exempted from the federal estate and gift taxes. This is welcome relief for family businesses, especially those planning for succession, where the founder hands over the company’s leadership and ownership to the next generation. Still, anybody with a real job and familiar with tax returns knows that the rules of taxation are clear as mud. And every change in tax law creates new wrinkles that must be ironed out.

That’s what the Treasury Department’s done. It’s taken a strongly pro-property rights step in the process. The TCJA doubles the estate, gift and generation-skipping transfer exemption levels to $11.58 million for individuals and $23.16 million for couples.

Uncertainty arose from the fact the Trump tax cuts are effective 2018 through 2025. Would government tax collectors honor financial plans laid within this timeframe, even when life gets in the way, of the arbitrary effective dates, should Congress not reauthorize these provisions? Or could federal revenuers try to “claw back” funds transferred that today are within the TCJA levels but exceed the limits of the status quo ante law?

These are consequential questions. A monetary gift to a son or daughter that’s within the higher TCJA levels but above the $5 million limit of the prior law (to which these exemptions would revert) could face a 40 percent “claw back” tax, if the parent who gave the gift died after 2025 and the TCJA had expired. That’s a confiscatory tax rate. And a government “claw back” would add to the suffering of the grieving surviving family and likely put the family business at financial risk — all because somebody relied in good faith on the law now in force but had the audacity to outlive the TCJA. Further, it’s not unusual for owners of family businesses to do their financial planning years before they die. So, this matter has been a very real concern to many family business owners.

Treasury now has specified that, whatever may change in the future including reversion to lower death and gift exemption levels, those permissible under TCJA won’t be subjected to bureaucrats’ clawing back and taxing those transfers long after the fact. The Family Business Coalition (CPR and several of our member organizations are part of FBC) commended Treasury Decision 9884 in a letter to Secretary Steven Mnuchin.

Tax rules and rates could backslide to their previous levels — or worse. After all, many contenders for the Democratic presidential nomination have proposed raising the Death Tax. Several have upped the ante with punitive wealth taxes, which would confiscate huge slices of the wealth created by family-owned businesses. Such government theft would dramatically infringe on private property rights. One might call it socialism. For now, American business owners have a basis for proceeding with making financial plans.

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