As you may know, the federal estate and gift tax exemptions temporarily increased under the Tax Cuts and Jobs Act (TCJA), and they are scheduled to revert to pre-2018 levels at the end of 2025. This change could significantly reduce the amount you can transfer to your heirs tax-free, potentially affecting your long-term estate and financial plans. Now is the time to review your options and take proactive steps to preserve the benefits of the current exemptions before they expire.
Capitalize on Current Opportunities
If the TCJA is allowed to sunset, the current exemption amount of about $13.6 million per person, or $27.2 million for a married couple, will be cut in half, leaving individuals about $7 million or couples about $14 million exempt from federal taxes, adjusted for inflation.
The example below illustrates today’s federal estate tax impact versus after the TCJA sunsets on January 1, 2026. Without proper planning, you risk leaving millions on the table and losing a significant portion of your wealth to taxes. Taking action now creates future financial security for your loved ones and protects your estate from heavier tax burdens.
Use It or Lose It
Changes in tax law, like other life changes, are an ideal time to consult your estate planning attorney and wealth manager and take action tailored to your situation. For instance, if your assets appreciate between now and January 1, 2026, your estate could exceed future exemption thresholds. Transferring or gifting assets now allows you to ‘use’ today’s higher exemptions before you ‘lose’ them. Regularly reviewing your estate plan helps ensure it stays aligned with both tax law updates and shifts in your family’s circumstances.
The unique needs of business owners are also important to consider. For those whose retirement depends largely on the value of their business, conducting a business valuation is a critical step in the planning process. A valuation provides a clear picture of your business’s current worth, allowing your wealth advisor to assess its impact on your financial plan and ensure it aligns with your long-term financial goals and retirement needs. Given the current favorable estate tax exemption levels, there might be an opportunity to include the business in your estate planning strategies. This can help maximize the potential to transfer wealth while minimizing future tax liabilities.
Wealth Transfer Strategies
When developing a wealth plan, it’s essential to incorporate a comprehensive financial strategy. High net worth individuals should consider gifting assets to irrevocable trusts to lock in current exemptions and remove future appreciation from their taxable estate. Combining irrevocable gifting trusts with discounting strategies and estate-freezing techniques can help reduce the taxable value of assets and mitigate the impact of future estate taxes. Some common strategies may include:
- Charitable Lead Trusts (CLTs)
- Grantor Retained Annuity Trusts (GRATs)
- Spousal Lifetime Access Trusts (SLATs)
- Qualified Personal Residence Trust (QRPT)
While these are specific examples, many other strategies may exist for your unique financial situation. Whether it’s an enticing tax incentive encouraging investments or expiring income tax rates, a wealth and estate advisor can help you navigate the wisest next steps.
Helping You Get There…
Change is inevitable, especially in the financial world, so understanding tax laws’ current and future implications can make a powerful difference in your financial planning. Boulay has all the necessary resources to create a comprehensive plan for the estate tax sunset, with experienced business valuation, estate and trust advisors, and wealth managers who can help you discern your next moves and 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 Boulay Advisor to discuss your opportunities and how Boulay can help you get there.