GIFT & ESTATE | 11/02/2024
Adapting Your Estate Plan to Potential Changes in Gift Tax Exemptions
At Chartered Consulting LLP, we understand that estate planning is a crucial process for ensuring your assets are distributed according to your wishes while minimizing taxes and expenses. With the Tax Cuts and Jobs Act (TCJA)’s enhanced estate and gift tax exemptions set to expire at the end of 2025, now is the time to review and adapt your estate plan to secure its benefits and prepare for future changes.
Here’s how individuals and families can approach estate planning under various wealth thresholds.
Strategies for Estates Under $14 Million
The TCJA doubled the lifetime exemption for estate and gift taxes, but a reduction would increase the number of estates subject to higher taxes. If your estate falls below $14 million, consider the following approaches:
- Annual Gifts: Use the annual gift exclusion to reduce your taxable estate. In 2024, you can gift up to $18,000 per recipient ($36,000 for married couples), increasing to $19,000/$38,000 in 2025.
- Non-Taxable Gifts: Cover education or medical expenses directly for someone, as these payments are exempt from gift taxes and don’t count against your lifetime exemption.
- Charitable Donations: Donate up to $105,000 annually from an IRA to qualified charities, tax-free. This limit increases to $110,000 in 2025.
- Plan for Appreciation: Transfer assets likely to grow in value through trusts or sales to reduce taxable estate growth over time.
- Family Limited Partnerships (FLPs): Pool family assets and transfer ownership interests at a discount, enabling you to pass on more wealth.
- Flexible Planning: Stay prepared to adjust your plan as tax laws evolve.
For Couples with Estates Between $14 Million and $28 Million
Married couples benefit from combined estate and gift tax exemptions, projected to total $27.98 million in 2025. Careful planning can help optimize this exemption:
- Single-Spouse Gifting: One spouse can utilize their full exemption to reduce the couple’s taxable estate, particularly if the exemption decreases in the future.
- Lifetime Exemption Gifts: Allocate gifts to children, grandchildren, or trusts such as irrevocable life insurance trusts (ILITs) or generation-skipping trusts (GSTs) to shield assets from future taxes.
- Spousal Lifetime Access Trusts (SLATs): Allow one spouse access to the trust while keeping assets outside the taxable estate. This strategy requires precise planning to avoid tax issues and ensure flexibility.
Advanced Strategies for Estates Over $28 Million
Estates exceeding the exemption threshold must act decisively to preserve wealth and minimize future tax exposure:
- Use the Current Lifetime Exemption: Lock in the current $13.61 million exemption per person before potential reductions in 2026.
- Taxable Gifts to Trusts: Decrease taxable estate size and exclude appreciation on gifted assets from future estate taxes.
- Sales to Trusts: Transfer appreciation potential by selling assets to an irrevocable grantor trust in exchange for a promissory note.
- Grantor Retained Annuity Trusts (GRATs): Transfer appreciating assets while retaining annuity payments to minimize tax liabilities.
- Irrevocable Life Insurance Trusts (ILITs): Keep life insurance proceeds out of your taxable estate, providing liquidity for estate taxes or other needs.
- Charitable Giving: Reduce estate taxes through strategic gifts to qualifying charities or charitable trusts.
Partner with Chartered Consulting LLP
Effective estate planning requires balancing complex tax laws, financial goals, and family dynamics. At Chartered Consulting LLP, our team of CPA professionals works alongside experienced estate planning attorneys to develop strategies tailored to your unique needs.
By acting now, you can take advantage of the current exemptions, secure wealth for future generations, and achieve your financial and charitable aspirations. Contact us today to start planning your estate with confidence.