The historically high federal estate tax exemption will sunset on December 31, 2025. It may sound like there’s plenty of time to change your estate plan, but according to an article from Think Advisor, “Act Now to Avoid Estate Planning Logjam in 2025,” the time to start planning is now.
Your estate planning attorney will be in high demand over the next two years as more and more people realize their estate may be subject to the new lowered levels of the federal estate tax. Estate planning is a complex process; any strategy may take years to implement fully.
The 2017 Tax Cuts and Jobs Act delivered some of the most sweeping changes in federal tax law in nearly three decades. At the time, the exclusion amount for estate, gift and generation-skipping transfer tax purposes increased from $5 million to $10 million and was indexed for cost-of-life adjustments starting in 2010.
For anyone who dies in 2023, the exemption amount is nearly $13 million, or a combined exemption of a little less than $26 million for married couples.
The increase in the exclusion only applies to estates of decedents dying after December 31, 2017, before January 1, 2026, and to gifts made during that period. On January 1, 2026, the exemption returns to $5 million per person, indexed for cost of living.
You don’t have to die to take advantage of these generous exemptions. However, you still need to enact some of the various strategies to move wealth out of your estate and be sure that such strategies are appropriately supported legally.
Start by realistically assessing your entire net worth, looking beyond your investment portfolio. Include the value of any assets included in your taxable estate. You’ll also need to know how much exemption remains if you’ve already engaged in some legacy planning.
Consider gifting assets to a qualified charity as one of the most effective ways to reduce the size of your estate.
If your focus is keeping wealth in the family, there are several strategies to pass wealth to the next generation while living and after you have died. Some are relatively straightforward, such as making annual gifts, while others are complex, including transferring assets to trusts or creating generation-skipping trusts.
Now is the time to meet with your estate planning attorney to determine which strategies could be used to reduce your taxable estate in light of the lowered exemptions.
Reference: Think Advisor (May 22, 2023) “Act Now to Avoid Estate Planning Logjam in 2025”
