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The Internal Revenue Code imposes a tax on the value of wealthier estates that is payable after the owner passes away. In 2017, an individual could bequeath $5,490,000 to his or her heirs, free of estate tax, while wealth passed in excess of this exclusion amount was subject to an estate tax of 40%. The Tax Cuts and Jobs Act increased the estate tax exclusion to $11,180,000 in 2018, which exclusion amount increases for inflation each year.

The estate tax cannot be avoided by making lifetime gifts to heirs; such gifts must be reported on IRS Form 709 and reduce the giftmaker's estate tax exclusion amount. If the exclusion amount is exhausted, a gift tax applies in lieu of the estate tax. Upon death, the personal representative of the decedent's estate will file IRS Form 706 and add all prior gifts back to the value of the estate owned by the decedent on death as part of the completion of the estate tax return and calculation of the estate tax.

Under the Tax Cuts and Jobs Act, the estate tax exclusion reverts to approximately $5,500,000 in 2026. This reversion could have "retroactively [denied] taxpayers who die after 2025 the full benefit of the higher exclusion amount applied to previous gifts." This possibility arose because the estate tax exclusion amount has never gone down before, and the credit against the estate tax for gifts made when the exclusion amount was high could have been calculated based upon the lower exclusion amount upon death.

Treasury Regulation Section 20.2010-1(c) resolved this uncertainty. In summary, individuals maintain the benefit of having made gifts utilizing the estate tax exclusion in a year when the exclusion was higher than it is at death. One of the examples in the regulations assumes that a never-married individual made lifetime taxable gifts of $9 million and paid no gift tax at the time because the gifts were made when the exclusion was $11.4 million. Upon death, the exclusion amount was $6.8 million. The example concludes, "Because the total of the amounts allowable as a credit in computing the gift tax payable on [the] gifts (based on the $9 million of basic exclusion amount used to determine those credits) exceeds the credit based on the $6.8 million basic exclusion amount allowable [on death, the credit] is based on a basic exclusion amount of $9 million..."

In other words, taxes are saved by making gifts during a time when the exclusion amount is high, as it is now, if death ultimately occurs when the exclusion is low. The exclusion amount will go down at the end of 2025 but could go down more than it is scheduled to, and sooner, under the Biden administration. Accordingly, for many wealthier taxpayers, the time to make gifts is before the end of this year.