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Changes in Estate Planning: Prepare for the Decrease in the Lifetime Estate and Gift Tax Exemption

Introduction

Are You Prepared for the Decrease in the Lifetime Estate and Gift Tax Exemption?


Large country estate home nestled in the forest

Signed into law in 2017 by President Trump, the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) doubled the lifetime estate and gift tax exemption levels. For 2024, this exemption stands at $13.61 million per person/$27.22 million for a married couple.


However, the 2017 Tax Act also includes a provision (called a ‘sunset provision’) whereby the lifetime estate and gift tax exemption levels will be reduced to the 2017 exemption level ($5.49 million) adjusted for inflation effective as of January 1, 2026.


How this Affects Estate & Gift Tax Exemption

At this juncture, it is unknown that the exemption level will be as of January 1, 2026, but estimates place it around $7 million per person/$14 million for a married couple. Estates that would not be subject to estate taxes in 2024 may find themselves subject to estate taxes under this reduced exemption level. The estate tax rate of 40% will remain in effect.


The Internal Revenue Service has issued guidance clarifying that people who take advantage of the increased lifetime estate and gift tax exemption levels will not be harmed after 2025 when these levels are currently schedule to drop, as regulations provide that an estate will be permitted to compute its estate tax credit using the greater of the exemption amount applicable to gifts made during life or the exemption level in effect on the date of death.


To put it another way – If you don’t use it, you lose it.


Every estate is unique and given the appreciation in the value of one’s assets and the scheduled reduction in the lifetime estate and gift tax exemption levels, it may be advisable to revisit your estate plan as the steps you take today may result in significant tax savings tomorrow.


Conclusion

Frankly, taking the various disclosure and valuation requirements into consideration, taking advantage of the higher lifetime estate and gift tax exemption levels currently in effect is not something that can be easily done at the last minute.


If you are interested in revisiting your estate plan, or if you would like assistance in preparing an estate plan, please feel free to contact one of our attorneys to help start the process.


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This article is intended for informational purposes only and should not be construed as legal advice. Individuals involved should consult with legal professionals for specific guidance tailored to their circumstances.


 

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