Legal Developments

A new IRS proposal protects taxpayers from having to pay estate tax at death on large gifts made from 2018 through 2025 that are currently exempt from the gift tax because of a higher exemption.  Some desire to make large gifts while the estate tax exemption is high ($11.4 million in 2019).  Under current law the exclusion amount returns to its pre-2018 level after 2025 ($5 million).  Doubling the exclusion amount and then sunsetting the increase can create situation where different exclusion amounts apply at the time of a person’s death versus at the time of a prior gift. This can cause problems when it is time to calculate the credit that is available to reduce the estate tax due at death, which is based on the applicable exclusion amount at the time.  The IRS is proposing a special rule that allows an estate to apply the higher credit available at the time of the gift, rather than the lower credit in the future.

Economic Observations

Global politics, interest rates, and trade tensions are spooking the markets, which have been adjusting in a volatile manner. Significant daily swings have become the norm in recent weeks that are often driven by “tweets.” The more significant of the issues, China and interest rates, appear to be moderating and that moderation has caused positive results.  However, just when you felt there may be a positive Christmas surprise, uprisings in France and Britain, and the threat of a U.S. government shut-down, have injected additional negatives into markets that are trying to find their way.  Inflation data is firm but not accelerating, which will likely seal a Fed increase in December.