Increased Estate Tax Exemption and Its Sunset

Increased Estate Tax Exemption and Its Sunset

The current estate tax landscape offers a unique opportunity for high-net-worth individuals and families. The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the estate tax exemption, allowing individuals to shield a much larger portion of their assets from federal estate tax. However, this generous exemption is temporary and scheduled to “sunset” at the end of 2025.

What is the Estate Tax Exemption?

The estate tax exemption is the amount of money you can transfer to heirs without incurring federal estate tax.  In 2024, this exemption sits at a historically high $13.61 million per person. For married couples, that jumps to a combined $27.22 million. This means a married couple could potentially pass on nearly $27 million without any federal estate tax burden.

The Looming Sunset and Its Impact

The current exemption is set to revert to pre-TCJA levels, adjusted for inflation, at the beginning of 2026. This could mean a significant drop, potentially down to around $6.8 million per person.  Estates exceeding this new, lower threshold would be subject to a federal estate tax rate as high as 40%.

What This Means for You

For individuals and families with estates exceeding the projected 2026 exemption, this temporary increase presents a valuable opportunity for proactive estate planning. Here are some key things to consider:

• Gift Tax Strategies: Utilizing the annual gift tax exclusion ($17,000 per recipient in 2024) allows for gradual transfers of assets outside your taxable estate.
• Grantor Retained Annuity Trusts (GRATs): This strategy allows you to transfer assets to a trust while retaining income for a set period. The remaining value in the trust then passes to your heirs, potentially reducing your taxable estate.
• Life Insurance Planning: Life insurance proceeds can provide beneficiaries with liquidity to cover estate taxes, minimizing the impact on inherited assets.

Don’t Wait Until It’s Too Late

The current exemption offers a valuable window for tax-efficient estate planning. Consulting with an experienced estate planning attorney can help you understand your options and develop a personalized strategy to maximize the benefits of the increased exemption before it sunsets. At KLG Estate Planning in Massachusetts and New Hampshire, our team of estate planning experts with over 40 years of experience can guide you through the complexities of the current tax environment and help you develop a plan that minimizes your estate tax burden and ensures your legacy is passed on according to your wishes. Contact us today to schedule a free consultation.