New Clawback Proposed Regulations – What You Need to Know

By Jonathan G. Blattmachr Esq., Professor Mitchell M. Gans and Martin M. Shenkman Esq. On May 17, 2022

Estate Planning Estate Tax Exemption Estate Tax Exemption Planning Estate Tax Inclusion Estate Tax Planning Portability QTIP Trusts Section 2035

On April 27, 2022, the IRS released proposed regulations that follow up on the initial “Anti-Clawback” regulations released in 2019. The proposed regulations provide guidance on how various estate planning strategies may be treated in situations where the unified estate and gift tax exemption is lower on the taxpayer’s date of death than it was on the date the strategy was implemented. Since lifetime gifts are factored into the estate tax calculation, planners were rightly concerned that a lifetime gift might not have the desired tax effect if the client died when the exemption was lower, bringing the large gift back into the estate but with a lower date-of-death exemption used for calculation purposes. The 2019 regulations ensured that lifetime gifts would not be “clawed back” into the estate by stating that the exemption used for estate tax calculation purposes is the higher of the date-of-death exemption and the exemption available at the time of the lifetime gifts. However, those regulations did not cover all situations, such as GRATs and other strategies where property was given away during lifetime but a portion (or all) of it could still be included in the client’s estate at death.

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Jonathan G. Blattmachr Esq.

Mr. Blattmachr is a Principal in ILS Management, LLC and a retired member of Milbank Tweed Hadley & McCloy LLP in New York, NY and of the Alaska, California and New York Bars. He is recognized as one of the most creative trusts and estates lawyers in the country and is listed in The Best Lawyers in America. He has written and lectured extensively on estate and trust taxation and charitable giving.

Professor Mitchell M. Gans

Professor Mitchell M. Gans is the Steven A. Horowitz distinguished professor in taxation at Hofstra University School of Law, and an Adjunct Professor of Law at NYU Law School. He is an Academic Fellow at ACTEC and is the Academic Editor of the ACTEC Journal. Professor Gans is a leading scholar in the estate-and-gift tax area, teaching courses for the IRS on estate and gift tax and valuation methodology. He is a frequent lecturer for ALI-ABA, NYU, ACTEC, the ABA and other groups and has written numerous articles on estate tax planning topics, including a recent Leimberg Information Services article, co-authored with Jonathan Blattmachr, on the Proposed Section 2704 Regulations.

Martin M. Shenkman Esq.

Martin M. Shenkman is an attorney in private practice in Fort Lee, NJ, and New York City. His practice concentrates on estate and tax planning, planning for closely held business, and estate administration. Mr. Shenkman is an author of over 42 books and more than 1,000 articles. He is an editorial board member of Trusts & Estates Magazine and the Matrimonial Strategist, and an advisor for InterActive Legal. He is the recipient of many awards including being a 2013 recipient of the prestigious Accredited Estate Planners (Distinguished) award from the National Association of Estate Planning Counsels. Mr. Shenkman was named Financial Planning Magazine 2012 Pro-Bono Financial Planner of the Year for his efforts on behalf of those living with chronic illness and disability. Investment Adviser Magazine featured him on the cover of its April 2013 issue naming as the lead of their “all-star lineup of tax experts.”