The Time to Plan for the Estate and Gift Tax Sunset of 2025 Is Now
Key Points
Unless Congress acts, the increased estate and gift tax exemptions will expire, or sunset, on December 31, 2025.
While this seems like a long way off, proactively looking at strategies to leverage the increase should be done sooner rather than later.
You’ll want to consult with estate planning attorneys, tax advisors, and financial advisors who specialize in high-net-worth planning.
The date for the estate and gift tax sunset is rapidly approaching. Unless Congress takes action, the increased estate and gift tax exemption will expire in 2025. The sunset could significantly impact estate planning for many high-net-worth individuals, families, and businesses.
Understanding the implications is critical in determining if you should adjust your gifting plans. Estate planning can be complex, especially when you want to leave an inheritance or have philanthropic goals. Proactively talking through some strategies with your financial planner will help protect your wealth.
What is the Estate and Gift Tax Provision?
The Tax Cuts and Jobs Act of 2017 increased estate and gift tax exemption levels. However, this increase was temporary and will expire, or “sunset,” on December 31, 2025. After this date, the exemption amounts will revert to the significantly lower, pre-2018 levels.
The 2024 federal estate tax rate is 40%, and the lifetime gift and estate tax exemption is $13.61 million per individual ($27.22 million for a married couple). These exemptions allow you to transfer a substantial portion of wealth to your loved ones without incurring hefty taxes, provided those transfers happen before the end of 2025.
Nothing is certain, however. If Congress acts, the sunset may not happen. Legislative action could alter or extend the current exemption levels. We do our best to look at contingency plans and long-term strategies that account for various scenarios. We can’t control what happens in the law, but we can control whether we’re prepared.
Financial Planning Strategies for High-Net-Worth Individuals
To mitigate the potential impact of the sunset provision, we want to consider estate planning strategies to decide if these moves are right for you. You may want to:
Maximize Exemptions: make strategic gifts or transfers to your beneficiaries before the sunset
Use Gifting Strategies: Take advantage of annual and lifetime gift tax exclusions to transfer wealth in a tax efficient manner.
Implement Trust Structures: Establish irrevocable trusts, such as grantor-retained annuity trusts (GRATs) or intentionally defective grantor trusts (IDGTs), to facilitate efficient wealth transfer and minimize taxes.
Consider Life Insurance: Explore life insurance policies to provide liquidity for estate tax payments and to protect your legacy.
Review Estate Plans: Revisit your current estate plan and make necessary adjustments to align with the potential changes in tax laws.
Your specific situation will determine if any of these ideas could be beneficial. When making recommendations, an advisor will consider your values and the goals you have for your future legacy.
Navigating the complexities of estate and gift tax laws is an action best taken with experienced professionals. You’ll want to consult with estate planning attorneys, tax advisors, and financial advisors who specialize in high-net-worth planning, like Capstone Financial Advisors. We can tailor strategies and recommendations to match your unique circumstances and goals.
Remember, estate planning is an ongoing process, which is why we make sure to review and adjust strategies as circumstances and regulations evolve. By taking action now, you may be able to empower yourself to secure a stable financial future for your loved ones.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review by contacting us at capstonefinancialadvisors@capstone-advisors.com or (630) 241-0833.