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The Congress passed the Tax Jobs and Cuts Act during Trump's tenure as the president. One of the facets of this law was the doubling of the Estate Tax exemption from around 5 million to 11 million. This will likely revert back to 5 million in 2025.

My question what does this actually mean? Do you have to actually die during 2018-2025 to enjoy the larger exemption amount? But that doesn't seem very practical, and I saw online accountants advising wealthy clients to "lock in" the higher exemption while the law is in effect. Can somebody explain to me what this would mean/entail? Thanks.

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  • I nominate "the Tax Jobs and Cuts Act" as this stack's Freudian slip of the day!
    – MTA
    Feb 16 at 17:24

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In the US, there's an estate tax and there's a gift tax. They're related. What you don't spend or give out as gifts during your lifetime is taxed as part of your estate when you die. Thus, the estate tax exemption also doubles as the lifetime gift tax exemption.

So in addition to scheduling their death before the end of 2025, a wealthy taxpayer can also avoid some of the estate tax by gifting the amount (usually to a non-revocable trust) and using up the amount as part of the gift tax exemption. Which is what these accountants are talking about.

The IRS has a whole page talking about this.

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  • There are also some dodges for shifting when and how a wealth transfer is taxed, such as doing an in-family loan and then gifting the payments so (a) the giver pays the tax, (2) the tax is spread across multiple (possibly many) years, and (III) it's taxed as ordinarily income from an extremely -low-rate loan (0.3% used to be the lower limit).
    – keshlam
    Feb 15 at 17:24
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    @keshlam this is useful when the loan payments are below the annual gift tax exemption amount, which is a freebie and doesn't affect estate tax
    – littleadv
    Feb 15 at 17:58
  • Good point, @littleadv. It's worth noting that even when the payment is gifted, the recipient may be able to deduct the in-family mortgage interest on their own taxes.
    – keshlam
    Feb 15 at 18:29

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