How to Prepare for Sunset

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During the month of June, we are focusing on preparing for the sunset of the increased federal estate and gift tax exemption limit.  The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the exemption through the end of 2025.  Although that seems like a distant deadline, there might be time sensitive details to address before being able to take advantage of the increased limit.

In 2017, the exemption went from $5M (annually indexed for inflation) to $10M (annually indexed for inflation).  With inflation adjustments, in 2024 the original exemption amount is $6.805M, and when you factor in the temporary doubling of the exemption, an individual currently has a federal estate and gift exemption of $13.61M.  For a married couple, in 2024, this indexed amount is $27.22M.  At the beginning of 2026, the temporarily doubling of the federal estate tax exemption is expected to expire.  In 2026, the exemption will fall back to $5M (indexed for inflation, which is estimated at $6M-$7M when adjusted for inflation) for an individual and $10M (indexed for inflation, which is estimated at $12M-$14M when adjusted for inflation) for a married couple.

Barring legislative action, the exemption will revert to pre-TCJA numbers in 2026, potentially exposing many more estates to taxation at death. Individuals should lock in higher exemptions.  Wealthy individuals have a golden opportunity to transfer at least an extra $6.805M (and married couples at least an extra $13.61M) free of federal estate taxes to subsequent generations, but only if they act before this legislation expires at the end of 2025.  Those who don’t act in time risk losing the benefit of the doubled exemption and missing out on this potentially once in a lifetime opportunity.

The increased exemption as adjusted for inflation is a “use or lose” benefit and is available to a decedent who survives the increased exemption period only to the extent the decedent “used” it by making gifts during the increased exemption period.  It’s an “All or Nothing” Proposition: Pre‐2026 gifts effectively reduce the post‐2025 exemption amount potentially leaving little to no remaining exemption amount after 2025.  In order to use the temporarily doubled exemption without losing it, the entire remaining exemption amount must be gifted prior to 2026 (or prior to the legislation being repealed).

It’s prudent to start identifying the steps that need to be taken to include the increased exemption as soon as possible.  This change will have an effect on all the affluent families in the country, which might create a backlog for some of the planning pieces.  Waiting until the last minute might mean delays that exceed the deadline and create a loss of gifting power.  For instance, we’ve heard that business valuations are already delayed by 6 months.  Read more here about why you should Act Before Basic Exclusion Amounts Sunset.

Contact us with any questions or opportunities to help you or your clients achieve identified goals.  This is what we enjoy doing for only a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you. 

This information is for general and educational purposes and is not intended as legal or tax advice. Nor is it intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact a Heirmark Financial Professional. Information obtained from third-party sources is believed to be reliable but not guaranteed.  Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc., a Registered Broker/Dealer and investment Adviser, Member FINRA / SIPC. Heirmark, LTD is independently owned and operated.