Not Gone, but Occasionally Forgotten . . . Proposed Regulations Remind of Estate Tax

Hook Law News | Jun 7, 2022 | Letha Sgritta McDowell

In 2022, the federal estate tax exemption is $12.06 million. This means that an individual can pass up to $12.06 million without paying a federal estate tax (Virginia and North Carolina have both essentially eliminated their estate tax). Thus, for the vast majority of Americans, there is no concern about having to pay a federal estate tax at their death. However, this current high exclusion amount is only temporary and the $12.06 million is scheduled to revert to $5 million, with an index for inflation, for individuals dying on or after January 1, 2026. Thus, for many, we there has been relatively little need to focus on estate tax and reducing a taxable estate to reduce or eliminate estate taxes due at death.

However, with the deadline for reduced exemption coming soon, many are re-thinking whether they need to re-consider their estate tax plan – especially given the recent increases in property values and the relatively extended period of growth in the stock market. While we think of estate taxes as something to consider upon death, the estate tax is actually an estate and gift tax which is subject to a lifetime exclusion. Essentially, based on the exemption that exists today, an individual can pass up to $12.06 million but they may pass those funds either during their lifetime OR at their death. So, if an individual gifts $6.06 million to a child today and then dies next year with assets valued at $10 million, then they will pay estate tax on $4 million. This is due to the fact that they used $6.06 million of their lifetime exclusion amount in 2022 which left $6 million to be used at their death.

For individuals who have assets which exceed the estate tax threshold, or for those who are concerned that their assets may exceed the estate tax threshold, they may consider giving away gifts during their lifetime to take advantage of the current high exclusion amount. For example, someone who currently has $11 million in assets which would be taxed at their death may want to give away $6 million in assets today. Those $6 million are under the threshold of $12.06 million and therefore no gift tax will be due at this time. Then if the individual dies in 2026 or later, she would be left with only $5 million in assets subject to estate tax and, if the estate tax exemption at her death is $5 million, then she would pay no estate or gift tax. However, if the individual did not make a gift and instead died in 2026 or later with $11 million then $6 million of those assets would be subject to estate tax.

The concept of gifting in a tax planning world can be quite complex, however. Often gifts are not simply checks written to family members. Instead, gifts take a variety of forms which allow the donor to have some benefit or control over the gift which is relinquished at death. The question that remains with respect to those special types of gifts which may be made now, at a time when the exclusion amount is high and potentially higher than when the individual dies, is whether those gifts would be subject to being “clawed back” and thus subject to estate tax. In 2019, the IRS issued regulations which ensured that gifts made during life would not be clawed back into a decedent’s estate. However, concerned about potential abuse based on some of the creative gifting strategies which exist, the IRS recently issued proposed regulations specify that transfers that are includible in the gross estate or which are treated as includible in the gross estate for including, for example, gifts subject to a retained life estate or subject to other powers or interests regardless of whether the transfer was deductible, gifts made by enforceable promise, and other amounts that are duplicated in the transfer tax base, will be subject to claw back and thus the lower estate tax exemption in effect at the time of the individual’s death would be applicable.

So, while there is still time to consider estate tax planning and lifetime gifting, these new proposed regulations provide significant guidance on some of the planning strategies and shed light on whether they are advisable given the current tax legislation as well as based on the individual’s personal circumstances. While it has been easy to not consider the estate tax exemption for quite some time, these new regulations highlight why it is critical not to forget it.


Hook Law Center: Lots of our friends have gotten new puppies for the summer, is it puppy season?

Dan & Riggs: Hi Reader – While it may seem like puppy season around you, there actually is no such thing as “puppy season” for domesticated dogs. Dog ancestors such as the gray wolf do actually have a “puppy season” but that is specifically for the survival of the species. Female gray wolves go into heat in late winter, so their puppies are born in spring. The added warmth and availability of food in spring helped both the mother wolf and the pups stay alive. However, it is estimated that dogs were domesticated and separated from their wolf ancestors about 15,000 years ago. Better resources, better care, access to food, and protection from the elements has made breeding and survival of the species much easier so dogs can have puppies any time of year. Incidentally, this has also allowed over population so still be sure to pay and neuter your pets. There are a few exceptions to the general rule. Basenji dogs tend to only breed once a year with puppies being born in December and January. The Tibetan Mastiff goes into heat once a year in the fall with most puppies being born in December and January as well. Finally, the New Guinea Singing Dog also goes into heat once a year with most puppies being born in October and November.

Letha Sgritta McDowell

Attorney, Shareholder, CELA
757-399-7506 | 252-722-2890
[email protected]

Letha Sgritta McDowell is a Shareholder of Hook Law practicing in the areas of estate planning, elder law, special needs planning, estate and trust administration, asset protection planning, long-term care planning, personal injury settlement consulting, guardianships & conservatorships, and tax law. Ms. McDowell’s clients range from high-net-worth individuals with over $75 million in net worth to families with limited assets.

Ms. McDowell is a past President of the National Academy of Elder Law Attorneys and was named as a Fellow of the prestigious American College of Trusts and Estates Council (“ACTEC”) in 2020. She is certified as an elder law attorney by the National Elder Law Foundation (“CELA”) and Board Certified as a specialist in Elder Law by the North Carolina State Bar Board of Legal Specialization. Furthermore, McDowell is accredited to prepare and prosecute claims with the Department of Veterans Affairs.

Ms. McDowell is currently the chair of NAELA’s strategic planning committee, a member of the Board of Directors for the North Carolina Chapter of NAELA, and a member of the Board of Directors for the Purdue Center for Cancer Research. She is the former Chair of the North Carolina State Bar’s Elder Law Specialization Committee and is the former Editor-in-Chief of “Gray Matters”, the newsletter for the Elder Law Section of the North Carolina Bar Association. She is a consultant for InterActive Legal and has worked on several law and technology initiatives including IBM’s Watson project. Along with her experience practicing as an attorney, she has dedicated much of her time writing for national publications including, but not limited to: Wolters Kluwer,, the NAELA Journal, Trust & Estates Magazine and many more.

Practice Areas

  • Elder Law
  • Estate & Trust Administration
  • Estate Planning
  • Asset Protection Planning
  • Long-Term Care Planning
  • Special Needs Planning
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