Maximizing Your Estate Planning Strategies Before the 2026 Changes.

Trusts & Estates | Ladidas Lumpkins | May 10, 2024

As the estate and gift tax landscape undergoes significant shifts, individuals and families face a crucial window of opportunity to optimize their estate tax planning. The Tax Cuts and Jobs Act (TCJA) of 2017 ushered in substantial changes. TCJA increased the lifetime estate and gift tax exemption amount. But its sunset provisions also set the stage for potential changes in 2026.

1. Understanding the Changing Exemption Amounts

Effective January 1, 2024, the federal estate and gift tax exemption amount stands at $13.61 million per individual or $27.22 million per married couple, offering a generous allowance for transferring assets without incurring federal gift or estate taxes. However, the TCJA provisions are set to sunset on December 31, 2025, potentially reverting the exemption amount to around $7 million per person or $14 million per married couple.

2. Seizing the Current Opportunities

Given the uncertainty surrounding legislative actions after 2025, high-net-worth individuals are encouraged to explore existing options to leverage the current exemption amounts. Making lifetime gifts before 2026 allows for the utilization of the increased exemption and shields assets from potential taxation. It is crucial to note that portability elections made during this period will remain unaffected by the sunset provision, providing a continued benefit for surviving spouses.

3. Strategies for Gifting and Wealth Transfer

To navigate the evolving landscape, consider estate planning strategies tailored to your financial circumstances. Options include:

· Spousal Lifetime Access Trusts (SLATs), allowing for flexible asset transfer with income benefits for the non-gifting spouse.

· Irrevocable trusts for children or descendants, such as Crummey trusts, provide avenues to transfer appreciating assets, utilizing the current exemption before potential reductions.

· Grantor-Retained Annuity Trusts (GRATs) offer a method to “freeze” the value of your estate by shifting a portion or all the growth to your beneficiaries, without incurring and estate or gift tax (so long as you survive the term of GRAT).

4. Acting Before the Window Closes

The current estate and gift tax exemption offer a unique opportunity for estate planning, but its continuation beyond 2025 is uncertain. An “anti-claw-back” regulation by the Internal Revenue Service protects individuals using their exemption during their lifetime, making it imperative to act promptly.

Proactive engagement with your estate planning is essential in light of these potential changes. Utilizing the current exemption amounts strategically can safeguard your assets and secure a legacy for future generations. Consult with us and your team advisors to explore planning services.


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