Estate and Gift Taxes; Difference in the Basic Exclusion Amount (RIN 1545-BO72)

February 21, 2019

The Honorable David J. Kautter
Assistant Secretary for Tax Policy
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Ms. Kirsten Wielobob
Deputy Commissioner for Services and Enforcement
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

Mr. William M. Paul
Acting Chief Counsel
Internal Revenue Service
1111 Constitution Ave, N.W.
Washington, D.C. 20224

Ms. Holly Porter Associate Chief Counsel
Passthroughs & Special Industries
Internal Revenue Service
1111 Constitution Ave, N.W.
Washington, D.C. 20224

RE: Estate and Gift Taxes; Difference in the Basic Exclusion Amount (RIN 1545-BO72)

Dear Mr. Kautter, Ms. Wielobob, Mr. Paul, & Ms. Porter:

The Association for Advanced Life Underwriting (AALU) appreciates the opportunity to provide comments to the Department of the Treasury and the Internal Revenue Service (the Service) in response to the request for public comment on proposed regulations (REG-106706-18) addressing the effect of changes to the basic exclusion amount (BEA) made by P.L. 115-97 (also known as The Tax Cuts and Jobs Act or TCJA) used in computing federal gift and estate taxes.

Since 1957, AALU has been the leading organization of financial professionals who provide life insurance and retirement planning solutions for individuals, families, and businesses. Our more than 4,000 members nationwide are financial security professionals who focus on life insurance, annuities, and investments for estate planning, retirement, charitable giving, deferred compensation, and employee benefit planning services.

Effective legacy and business succession planning is a multi-decade process that is essential for the protection of one’s family, survival of a businesses, and planned charitable giving. AALU supports consistent and sustainable estate and gift tax policy that promotes reasonable and prudent long-term planning. AALU members work with clients to plan for contingencies over a lifetime, and consistency in the federal transfer tax regime is of paramount importance to ensure timely decision-making and certainty, ultimately protecting families and businesses.

AALU commends the Treasury Department and the Service for providing sensible clarity to the operational effect of the transfer tax changes made by the Tax Cuts and Jobs Act. In particular, we appreciate the efforts to ensure that a decedent’s estate is not inappropriately taxed with respect to gifts made during the increased BEA period.

The proposed regulation also provides the opportunity to bring further clarity on the application of the law to a number of common situations faced by taxpayers. AALU would appreciate further guidance for our members and their clients related to the following:

  1. Spousal Portability Clarification. We recommend that the Service clarify that the deceased spousal unused exclusion (DSUE) for a taxpayer who dies during the increased BEA should not be less than the DSUE claimed on the estate tax return of that taxpayer.

    Assume that B, a married taxpayer, dies in 2019 while the increased BEA is $11.4 million and has made $1.4 million in lifetime gifts. The DSUE claimed on his estate tax return is $10 million. Therefore the DSUE available to his spouse should be $10 million, irrespective of the BEA in force when the second spouse dies.

  2. Availability of Inflation Adjustments post sunset. We recommend that the Service clarify that taxpayers who make gifts during the increased BEA period will be able to make use of any inflation adjustments in the BEA beginning in 2026. This is consistent with Congressional intent (reflected in the Conference Report) to double the BEA. To decide otherwise produces a timing benefit, but not a fully doubled exclusion.

    Assume that D, a single taxpayer, elects to use his full lifetime gift exclusion under the increased BEA ($11.4 million) in 2019, and makes no further gifts. In 2026, the BEA returns to $5 million, but is inflation adjusted to$6,650,000 (assuming a 2% chained-CPI). D dies in 2026 with a taxable estate of $1 million.

    Under the proposed regulations it appears that the BEA for D’s estate would be $11.4 million, which eliminates any estate tax on his lifetime gifts. However, this would also suggest that D will owe an estate tax of $400,000 (40% of $1m), unless he benefits from the $1,560,000 inflation adjustment made to the post-sunset BEA. Given the intent of Congress to provide a doubled exclusion during the proscribed period, it follows that taxpayers should be able to make use of the inflation adjustments beyond the period of increased BEA.

  3. Ordering the application of the Several of our practitioners inquired whether there were any legal guidelines defining whether a taxpayers’ use of the BEA draws up from zero or down from the maximum allowable BEA. We were unable to identify any guidance on this point. This ambiguity has encouraged some to proclaim the increased BEA as ‘use it (all) or lose it’ for the purposes of lifetime giving. Given the prescription of P.L. 115-97 that the doubled BEA will expire in 2026, additional clarity on this point would make a material difference in which taxpayers could avail themselves of the law.

As experts in the practical impact of laws and regulations affecting transfer taxes, we appreciate the opportunity to provide comments on the regulation and are happy to answer additional questions. We are glad to serve as an ongoing resource to the Service and the Treasury, including assisting with the exploration of various ways to approach the answers to the questions raised above.

AALU commends your work to provide taxpayers with additional clarity with respect to the transfer tax regime and the relationship between the estate and gift taxes.


Marc Cadin
Chief Executive Officer


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