January 11, 2024
The temporary nature of tax laws imparts a sense of urgency on taxpayers, especially as it relates to estate and trust planning. At the end of 2025, our current favorable tax environment may shift back to pre-Tax Cuts and Jobs Act (TCJA) levels, shrinking tax exemptions and changing tax brackets. With that, now is the time to explore different estate planning strategies to maximize their impact for you and your family. In this article, Andrea Thermos, CPA, Partner, briefly explains tax sunsets and their implications for tax efficiency.
What is a Tax Sunset?
Tax sunsets highlight how tax laws are time bound, delineating specific expiration dates for certain provisions. Unless extended or revisited by our governing bodies, these laws will simply terminate. This urgency emphasizes the critical role of timing in making financial decisions, especially in estate and trust planning. As of January 1, 2026, tax brackets will shift back to levels from before the TCJA of 2017, meaning taxpayers will ultimately pay more, and the estate and trust gift tax provision will drop from the favorable amounts to around half of the current exemption. More simply, for wealthy families, this halves the tax-free amount they can pass on to future generations and could increase the amount of estate paid.
Capitalize on Current Opportunities
For those seeking to optimize their estate and trust opportunities, now is the time to heed the call to action. The impending possibility of tax law changes emphasizes the necessity of capitalizing on our currently available exemptions before these opportunities fade away. Strategies for gifting include:
1. Maximizing Exemptions: The most relevant and valuable approach suggests leveraging the current tax exemptions to their fullest potential. A knowledgeable estate and trust advisor can help you understand and capitalize on these favorable provisions and facilitate the transfer of assets while mitigating your future tax liabilities.
2. Exploring Diverse Charitable Giving Plans: There are many different avenues to take that fulfill specific philanthropic goals. Some key approaches include:
Another route to consider is broader wealth management, whether it’s an enticing tax incentive encouraging investments or expiring income tax rates, a wealth management advisor can help you navigate the wisest next steps.
Helping You Get There…
Change is inevitable, especially in the financial world, so understanding the current and future implications of tax laws can make an impactful difference on your financial planning. An experienced advisor can help you discern your next moves regarding the upcoming tax sunset and how to manage your finances moving forward. Now is the time to take advantage of our favorable tax environment and maximize your gifting possibilities. Connect with a member of our estate and trust planning team to discuss your opportunities and how Boulay can help you get there.
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