Though you may not know it, some people should feel a heightened sense of urgency regarding their estate plan. This is primarily due to the sunset provision in the Tax Cuts and Jobs Act (TCJA), which significantly alters the estate and gift tax exemption thresholds. Currently, these thresholds are at an all-time high. Because of the provision that we will discuss in more depth, this ACT offers a unique window of opportunity for estate planning. The caveat is that this window is set to close by the end of 2025.
Avoiding Federal Estate & Gift Taxes
When the TCJA was Introduced in 2017, it significantly increased the federal estate and gift tax exemption to $13.61 million per person for 2024. To realize how important that figure is, understand that it allows individuals to transfer substantial assets as gifts or through their estate without incurring federal estate or gift taxes. But, this provision is not permanent. Post-2025, the exemption is expected to revert to approximately $7 million per person, adjusted for inflation.
This impending adjustment highlights the need for proactive estate planning to mitigate potential tax implications that could significantly impact family assets—especially if you have an estate that falls within these parameters. For high-net-worth individuals, the current period represents a crucial opportunity to maximize the higher exemption limits, potentially leading to considerable tax savings.
How To Use the Tax Exemptions
You can do several things to leverage the TCJA’s sunset provision effectively. The key is to act now to take advantage of the higher exemption amounts before they lower. The IRS has affirmed that utilizing the enhanced exemption amounts for 2024 and 2025 will not result in penalties later, even after the exemption amounts are reduced. This is a golden opportunity, especially for married couples, to implement strategic gifting and safeguard a larger portion of their estate from future taxes.
In addition, have a conversation with your estate planning attorney regarding how your assets are distributed. This is particularly important for couples using sophisticated estate planning strategies, such as Spousal Lifetime Access Trusts (SLATs). Maximizing your current exemptions relies on how your assets are aligned and distributed. Similarly, getting ahead of your estate planning is important if you have assets that need valuation—for example, married couples with interests in closely held businesses. The valuation process and navigating transfer restrictions can be intricate and time-sensitive. Because of the additional step, early action is necessary to receive the full benefit of the existing exemptions.
Because the exemption levels are set to lower, think of this as a compelling reason to address your estate planning needs. Estate planning attorneys will help you minimize any potential estate and gift tax liabilities that you may be subject to. They will also look at the strategies you’re employing to ensure they’re working with the evolving tax laws and your current circumstances. Though it is not the focus of this blog, people often overlook the need to adjust their plan after a significant change in circumstances. At the very least, you should be looking at your plan each year.
Take Another Look at Your Estate Plan
Your window to take advantage of higher exemption amounts is narrowing. Procrastination could result in missed opportunities. Schedule a consultation with us so we can discuss your estate plan and help you prepare for the future. We’ll ensure your estate is positioned advantageously in light of upcoming tax law changes.
Norton Pelt, PLC
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