by Lloyd McAlister
In early 2017, the provisions of the Tax Cuts and Jobs Act went into effect. The act contained a variety of provisions that are set to sunset at the end of 2025. One of the sunset provisions is tied to the estate and gift tax exemption. As real estate values have increased and wealth has accumulated for many property owners these past few years, estate tax planning will become a concern for many families in the years ahead of the sunset.
The Tax Cuts and Jobs Act doubled the estate tax exemption up to roughly $11 million per person. With that exemption level indexed annually to inflation, the current exemption threshold is $12.92 million per person, increasing to a projected $13.61 million for persons dying on or after January 1, 2024. This means the first $12.92 million ($13.61 million in 2024) in a person’s estate at the time of death is exempt from estate taxes to the extent the exemption has not previously been used to offset gift tax for lifetime transfers.
Fast-forward to 2026 and the estate and gift tax exemption amounts will sunset unless otherwise extended by Congress and the president. Projections for the post-sunset exemption level place the new amount about $7 million per person. Keep in mind, every dollar over the exemption level is subject to a 40% tax. And keep in mind the estate tax applies to life insurance and retirement benefits owned by the deceased person.
Families should be proactive when planning in anticipation of this sunset event.
With the November 2024 general election scheduled before the sunset date, it is impossible to predict whether the sunset will occur or if the higher exemption levels will be extended. Regardless, taking proactive steps today can save a lot of time and money if urgent changes to your succession plan are required.
If your family could be in estate tax territory after the sunset, the best strategy is beginning proactive estate planning efforts now. Waiting to engage a succession planning team and develop a strategy for managing potential estate taxes could be costly.
