It’s Time to Start Planning for the Sharp Reduction in the Estate Tax Exemption

Though you might have acted responsibly by developing a comprehensive estate plan, you should always be cognizant of shifts in the law that could thwart your intentions. For example, a substantial reduction is slated for the federal estate tax exemption at the end of 2025. As your asset distribution strategy might be based on the increased exemption level introduced in 2017, it’s time to start reviewing your arrangements. 

Currently, the exemption amount stands at $13.61 million per individual or $27.22 million for married couples, allowing a substantial portion of wealth to pass to heirs tax-free. However, this high exemption is set to expire on December 31, 2025, unless Congress takes action to extend it. If no legislative changes are made, the exemption will revert to approximately $6 million per individual, significantly increasing the number of estates subject to federal taxes.

Here are some key steps to consider as you prepare for the sunset of the current estate tax exemption:

• Making strategic gifts — One way to reduce the size of your taxable estate is to make gifts during your lifetime. This can be done until the assets distributed equal the exemption amount. By taking advantage of the higher exemption before it expires, you can transfer wealth to your heirs now, reducing the size of your estate and potentially minimizing the tax burden if the exemption drops.
• Establishing one or more trusts — Various trust structures, such as irrevocable life insurance trusts (ILITs) or grantor retained annuity trusts (GRATs), can be effective tools in managing estate taxes. These vehicles can help remove assets from your taxable estate while still allowing you to retain some control over them during your lifetime.
• Donating to charity — Many people choose to donate a share of their wealth to a cause that means something to them rather than surrendering it to the government upon their death. By working with a skillful estate attorney, you can direct assets to an existing charitable organization or start a foundation of your own that benefits others. 

Tax laws can be unpredictable, and there’s always the possibility that Congress will extend the 2017 exemption levels or find some middle ground. Staying informed is essential. By taking steps now to address the scheduled revision, you can protect your wealth and minimize tax exposure.

At the Law Offices of Kevan I. Benkowitz in Plano, we offer Texans personalized estate planning counsel consistent with the latest legal developments. For a free initial consultation, please call [ln::phone] or contact us online.