A Sizeable Decrease to the Currently High Gift and Estate Tax Exemption is Approaching. Proper Planning and Taking Action to Mitigate the Adverse Tax Consequences is Crucial.
For persons making lifetime gifts or pass-away in 2024 the applicable tax rate is 40% of one’s lifetime gifts and testamentary estates that collectively exceed $ 13,610,000 (the gift/estate tax “exemption”). Barring legislative action, the existing exemption will sunset (expire) at the end of 2025 and thereby substantially decrease. The expected reduced exemption will be $5,000,000 adjusted for inflation.
Since both lifetime gift taxes and estate taxes share the same tax credit, strategic and mindful consideration should be devoted to preserving the currently elevated exemption. Making meaningful lifetime gifts, outright or in trust, before the impending reduction at the end of next year can safeguard against adverse tax implications.
Timely gift planning is essential. The advantage of appropriate lifetime gifting before the sunset takes place is realized to the extent that the lifetime gifts exceed the adjusted sunset amount. If not timely exercised the valuable difference between the current higher exemption amount and the post-2025 reduced amount will be forfeited.
By not acting in a well-timed and appropriate manner, the potential gift and estate tax exposure may mean a taxpayer could owe more than $2,400,000 in gift or estate taxes. Thus, determine whether you are in a position to qualify for this currently extraordinarily favorable treatment and if so, formulate and implement a timely and proper plan.