Estate and Gift Tax Forecaster

[Kathleen Reynolds]

#3175

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With new Presidency adminstrations, uncertainty regarding the Estate and Gift Tax always surfaces. The current law is set to Sunset on 1/1/2026. However, there have been several scenarios that have come to light.

Current law (2023) allows for the Estate Tax exclusion of $12,920,000. The Gift Exclusion has matched the Estate Tax exclusion for many years, but one scenario shows that the Gift Tax exclusion will be significantly lower than the Estate Tax exclusion. Preliminary talks suggest that the estate tax exclusion will be set to $3.5 million, and the gift tax exclusion set to $1 million. In 2011, the portability of the Deceased Spousal Unused Exclusion (DSUE) was introduced, and is still in effect as of 2021. It appears as though the portability of the DSUE will still be allowed, but nothing is certain.

Also, the top Estate Tax rate for the current law is 40%. It appears as though this will change, with a sliding scale of rates based on the taxable estate.

This model allows you to compare the current law with a “Forecast” or projected set of changes, that includes the user defined Estate Tax exclusion, the user defined Gift Tax exclusion. In addition, you can select to use the current rate structure, or create a tiered bracket of rates.

This model is for projections only. When filling out an Estate tax return, you should continue to use the Estate Tax model that is included in the program. Additionally, Prior Adjusted Taxable Gifts assumes that no Gift Tax was paid at the time of the gift (i.e. the client used their lifetime exclusion).

Entering Data

• Projected Year of Death Enter the year of death. If the year entered is in the future, make sure to enter the inflation rate to be used to calculate the Exclusion under the current law.
• Tax Calculation Enter the type of calculation, Estate or Gift Tax.
• Adjusted Taxable Estate If you selected the Estate Tax calculation, you will be asked to enter the adjusted taxable estate.
• Taxable Gift If you selected the Gift Tax calculation, you will be asked to enter the Taxable Gift to be used for the year.
• Prior Adjusted Taxable Gifts Enter the total amount of prior adjusted taxable gifts since 1977. Note: this model assumes that the unified credit used equals the maximum allowed for the prior taxable gifts, based on the projected year of death.
• State Estate/Inheritance Tax If you selected the Estate Tax calculation, you will be asked to enter the state decoupled estate tax or inheritance tax. This model does not allow for a state specific input. If you wish to calculate that tax, please use the Estate model under the Taxes column from the Main Menu.
• Use Deceased Spouse Unused Exclusion If the answer is “Yes”, the program will enable the inputs for the Spouse Death Year and the Spouse DSUE. For years before 2011, the portability of the DSUE was not allowed.
• Forecast
• Gift/Estate Exclusion Depending on your calculation type, this input will be used in place of the existing exclusion under current law.
• Allow Clawback? It appears as if prior taxable gifts that exceed the projected exclusion will not ‘Clawback’ into the estate or gift tax calculation. However, there is uncertainty, and this input allows you to toggle that behavior on and off.
• Use Current Rates If you select ‘Yes’, this will use the current laws tax rate structure (Currently 40%) for anything above the exclusion amount. If you select ‘No’, this will allow you to enter a custom tiered tax bracket for up to 4 brackets.
• DSUE Option If the ‘Use Deceased Spouse Unused Exclusion’ is set to ‘Yes’, then this input will allow you to toggle between several scenarios. Those include: 1) the DSUE can not be higher than the forecasted exclusion for the projection 2) the DSUE can be equal to the current law (which allows for up to $11.7 Million for 2021, or 3) the DSUE is not portable.
• Brackets If you selected ‘No’ for the ‘Use Current Rates’ input, a panel with 4 brackets will appear that allows the user to enter a tiered bracket rate schedule.

Results

Estate Tax Tab The summary report will compare the current regulations with the forecasted. See above image.

Graph Tab This tab illustrates the taxable estate/gift and the tax generated from both the current legislation and the forecasted.

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