As 2024 unfolds and with the April 15th tax filing date looming, it’s a good time to pay attention to the Federal Estate and Gift Tax exemption. Currently, due to laws set a few years back, many might think they don’t need to worry about estate taxes. However, this situation is temporary. Election years can lead to legislative changes, potentially impacting estate tax exemptions. Staying informed and ready to adapt your estate planning strategy is more important than ever.
Right now, the exemption is at a high point of $13,610,000 per person, thanks to the current law that has been indexed for inflation. But this is set to possibly change. Beginning January 1, 2026, based on the Tax Cuts and Jobs Act of 2017, will sunset and the exemption will drop significantly, affecting how much of your estate can be passed on estate tax-free. Absent of any new legislative action by Congress, the exemption will sunset to the pre-2018 exemption of $5,000,000 with an index for inflation (experts project this to be about $6,200,000 to $7,000,000 per person), affecting many current estate plans.
A Few Strategies to Consider for Your Estate
Given these upcoming changes and considering that generally the amount subject to taxation is at a predetermined top tax rate of 40%, it’s wise to start thinking about how to protect your estate. This may include adjustments to revocable and irrevocable trusts, gifting, and other estate planning tools to minimize future tax liabilities and taking advantage of the higher estate and gift tax exemptions that currently exist.
Making gifts or selling notes to trusts like a Spousal Lifetime Access Trust (SLAT) for your spouse or an Intentionally Defective Grantor Trust (IDGT) for your children can be smart moves if you have a larger estate. These help move assets out of your estate and allowing them to grow potentially lowering future estate taxes.
SLAT Trusts are useful for potentially shielding your estate from inflation. By placing assets in a SLAT, you can benefit your spouse and possibly your children, keeping assets within reach but outside your taxable estate. IDGT’s are another trust strategy, primarily aimed at benefiting your children or grandchildren, moving assets out of your estate while still supporting your loved ones.
Proper planning can also involve ensuring the right marital tax funding formulas are present in your trust and considering the establishment of a charitable remainder trust for the dual benefits of supporting charitable causes and managing tax liabilities.
As the tax exemption sunset approaches on January 1, 2026, it is crucial for higher net worth individuals and families to stay informed about potential changes in tax laws and to work closely with a qualified trusts and estate attorney to adapt their estate planning strategies accordingly.
If you, a friend, or family member needs assistance with planning to mitigate potential estate or gift taxes ahead of the rush to do planning before 2026, please connect with our Intake Department at (760) 448-2220 or at https://www.geigerlawoffice.co/contact.cfm.
