Why it’s Important to Prepare for the Estate and Gift Tax Sunset Sooner Rather than Later

As of Jan. 1, 2024, the federal gift and estate tax exemption amount increased to $13.61 million per person. This means that individuals can transfer up to $13.61 million tax free during their lifetimes or at death (or through a combination of life and death transfers), and married couples can transfer up to $27.22 million. It also means that even if you already utilized your full exemption amount of $12.92 million through lifetime gifts in 2023, you have up to an additional $690,000 to transfer in 2024 (an additional $1.38 million for married couples).

However, it’s important to note that the increased federal gift and estate tax exemption amounts are set to sunset, or expire, on Dec. 31, 2025 under the 2017 Tax Cuts and Jobs Act. Barring congressional action, the exemptions will revert back to approximately $6.8 million per person, adjusted for inflation, starting Jan. 1, 2026. This is a significant change that could have wide-ranging estate planning implications.

Depending on the 2024 election outcomes, there could be legislative changes to the federal lifetime gift and tax exemption amounts. But in the meantime, for individuals and families with large taxable estates, it would be wise to consider gifting strategies now to reduce the size of your taxable estate while the exemption amounts are higher. Additionally, gifting earlier in the year could help you get ahead of a potential inundation of estate planning attorneys and tax advisors as we approach the Dec. 31, 2025 sunset under current tax law.

If you’re concerned about whether this sunset could impact your family’s transition of assets and applicable tax consequences, we recommend conferring with your legal and tax advisors to review and perhaps update your estate plan sooner rather than later.

How to Prepare

In the event your taxable estate is likely to exceed the exemption following the sunset, there are strategies your estate planning attorneys and tax advisors could consider. Annual gifting ($18,000 per person and $36,000 for married couples is allowed in 2024) both reduces the value of your taxable estate and educates younger generations about the value of financial stewardship. Other strategies could include gifting to charitable organizations or making other types of qualified transfers, such as payments on someone’s else’s behalf directly to an eligible academic institution or medical care provider.

More advanced methods to reduce estate taxation include Spousal Lifetime Access Trusts (SLATs), Charitable Remainder Trusts (CRTs) and Intentionally Defective Grantor Trusts (IDGTs). Estate planning professionals can help you explore strategies and options that might be best for your specific situation.

The time to begin having these discussions with your estate planning attorney and tax advisor is now. Taxpayers are limited not only by the Dec. 31, 2025 sunset deadline, but also by the practical realities of the planning process combined with the limited time and resources of legal and tax advisors and their support teams.

We encourage our clients to contact their estate planning attorneys and CPAs as soon as possible to discuss their estate situations and begin exploring potential solutions that can meet their needs and goals. The planning process should be performed with sufficient time to ensure both effectiveness and flexibility for any future changes in the law or with family circumstances.

This article was published in the Q2 2024 issue of the Bell Wealth Newsletter.