Unless Congress intervenes, many significant provisions of the historic Tax Cuts and Jobs Act of 2017 (TCJA) will not apply for tax years beginning after December 31, 2025, including the increased estate and gift tax exemption threshold.
The estate tax and gift tax apply to transfers of money or property a taxpayer makes, whether while alive (gift tax) or at death (estate tax). The lifetime estate and gift tax exemption allows taxpayers to avoid tax on these transfers up to a certain amount. This threshold doubled from $5 million to $10 million per individual with the passage of TCJA. These figures are adjusted for inflation annually, resulting in a $13.61 million exemption amount per individual in 2024. Thus, a married couple would have exemption amounts equal to $27.22 million in 2024. As a temporary provision of TCJA, the exemption is due to return, or “sunset,” to an amount estimated to be between $6 million and $7 million per individual after indexing for inflation in 2026. Therefore, the amount a taxpayer may transfer tax-free, while alive or at death, will be reduced significantly.
Preparing Now Will Help You Maximize the Exemption
“Because of the time needed to develop and implement recommendations, waiting until 2025 may prohibit using the exemption before it sunsets,” says Holly M. Pantzer, partner and national industry leader – Forvis Mazars Private Client.
Coordinating the Exemption With Succession Planning
“Utilizing the exemption available today, making potential transfers of ownership of the company in tax efficient ways to benefit the family, integrates that exit plan with the estate plan.” – Troy Farmer, Managing Director Wealth Strategy
Next Steps to Consider
The historically high lifetime estate and gift tax exemption might provide a once-in-a-lifetime opportunity to transfer hard-earned wealth at a reduced or eliminated tax burden. Certainly, as the sunsetting date approaches, financial advisors, CPAs, and attorneys will be hard at work reviewing and adjusting estate plans to take advantage of this potential use-it-or-lose-it opportunity. This type of planning does not happen quickly, and getting an early start may be crucial for preparing an executable strategy. Strategies may include gifting to family and friends, charitable gifting, use of trusts, family business succession planning, and other means to utilize the exemption while it is still available.
How We Can Help
“Each family views itself through a unique lens that encompasses the value and plans for next generation transfers. We really want to listen and understand and provide that Unmatched Client Experience® that’ll help guide you through this process together.” – Liz Britton, Partner
Congressional action to address the sunsetting provisions has remained elusive. The highly publicized and only current major tax legislation being debated in Congress, the Tax Relief for American Families and Workers Act of 2024, does not contain any provisions addressing the lifetime estate and gift tax exemption threshold. Considering we are in an election year, the likelihood of any significant congressional action on the issue is slim. Therefore, you should consider whether using the increased exemption now would benefit your wealth strategy plan rather than adopting a wait-and-see approach and risking the inability to execute a strategy before the sunset occurs.
Please reach out to a professional at Forvis Mazars for assistance in evaluating whether the use of this exemption would be prudent and for further assistance with wealth preservation and estate and gift tax strategies.
Act Now to Utilize the Current Estate & Gift Tax Exemption
Join us September 12 for an insightful webinar as we look at current exemption levels and what the potential impact will be when they revert.