If Congress does not intervene, many important provisions of the historic Tax Cuts and Jobs Act of 2017 (TCJA) does not apply for tax years beginning after December 31, 2025, including the increased estate and gift tax exemptions.
The inheritance and gift tax applies to a taxpayer’s transfer of money or property, whether during their lifetime (gift tax) or after death (estate tax). The lifetime exemption from the inheritance and gift tax allows taxpayers to avoid tax on these transfers up to a certain amount. With the passage of the TCJA, that threshold doubled from $5 million to $10 million per person. These figures are adjusted annually for inflation, resulting in an exemption amount of $13.61 million per person in 2024. Thus, a married couple would have an exemption amount of $27.22 million in 2024. As a temporary provision of the TCJA, the exemption amount is scheduled to decline, or “phase out,” in 2026, after adjusting for inflation, to an amount estimated at between $6 million and $7 million per person. Therefore, the amount that a taxpayer can transfer tax-free during his or her lifetime or after death is significantly reduced.
If you prepare now, you can maximize the exemption
“Because recommendations take a long time to develop and implement, waiting until 2025 may prevent the exemption from being used before it expires,” said Holly M. Pantzer, partner and national industry leader at Forvis Mazars Private Client.
Coordination of exemption with succession planning
“Using the exemptions available today to carry out potential transfers of ownership of the business in a tax efficient manner for the benefit of the family integrates this exit plan into estate planning.” – Troy Farmer, Managing Director Wealth Strategy
Next steps to consider
The historically high lifetime exemption from estate and gift taxes could provide a unique opportunity to transfer hard-earned wealth with a lower or no tax burden. With the expiration date approaching, financial advisors, accountants and attorneys will surely be hard at work reviewing and adjusting estate plans to take advantage of this potential “use it or lose it” opportunity. This type of planning doesn’t happen quickly, and starting early can be critical to crafting an actionable strategy. Strategies may include gifts to family and friends, charitable giving, use of trusts, family business succession planning and other ways to take advantage of the exemption while it’s still available.
Congress has not yet addressed the sunset provisions. The highly publicized and currently only major tax bill being debated in Congress, the Tax Relief for American Families and Workers Act of 2024, does not include lifetime exemption provisions for estate and gift taxes. Since we are in an election year, the likelihood of significant congressional action on the issue is slim, so you should consider whether taking advantage of the increased exemption now will benefit your wealth strategy plan rather than taking a wait-and-see approach and risking not being able to implement your strategy before the deadline.
Please contact a Forvis Mazars expert if you need help assessing whether it would be wise to use this exemption and if you require further assistance with wealth preservation and inheritance and gift tax strategies.
