Don't Wait to Lock In High Estate and Gift Tax Exemptions

Don’t let an unknown tax future catch you unprepared. That’s the message I have for Americans ahead of a tax change set to impact millions of us.

When enacted in 2017, the Tax Cuts and Jobs Act (TCJA) was the most sweeping overhaul to U.S. tax code in decades. And if certain provisions of it are allowed to expire in 2025 as planned, virtually every American will be impacted if they don’t take steps now.

The 2024 presidential election is just days away, and with it will likely come many tax-related changes impacting millions of Americans. If you haven’t reviewed your financial plan recently, and especially those with an estate plan, I can’t emphasize enough the urgency of taking advantage of these historically high exemptions now, today. Not after the election. Now. This is a very unique opportunity to maximize the legacy you leave for your loved ones.

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Tax planning is a long, involved process, and waiting is not a wise option. Whoever your adviser is, contact them today and get ahead of it to help you navigate the significant complexities involved.

There will always be uncertainty about the future of taxes. In this case, however, you have the opportunity to act now and reap the benefits long term.

Let’s simplify what’s at stake for Americans

Typically, the federal government imposes a transfer tax of up to 40% on certain transfers of wealth, in the form of an estate tax that applies at death or a gift tax on lifetime transfers. An additional generation-skipping transfer tax — potentially up to 40% — can apply if you make these transfers to a grandchild or further descendant. There could be state-level estate or inheritance taxes involved, too, depending on where you live. However, under the TCJA, individuals are currently allowed to transfer a significant amount of assets out of their estates without having to pay any federal transfer taxes.

The TCJA provides for an estate and gift tax lifetime exemption of $13.61 million for individuals in 2024 ($13.99 million in 2025), which means you can gift up to this amount — above which any gifting would be subject to a tax of up to 40%.

This exemption is historically high — but also potentially time-limited. The increased exemption is scheduled to "sunset" after 2025 and drop back to about $7 million on January 1, 2026.

The only way to take full advantage of the increased exemption is to make significant lifetime gifts before the sunset date.

Notably, these gifts cannot be retroactively taxed if the TCJA provisions are not renewed.

Maximizing the upside of this opportunity often requires an “all of the above” approach, which includes trust planning, lifetime gifts and the use of life insurance. Having a comprehensive, flexible holistic plan in place that incorporates life insurance can help maximize the amount of assets your heirs receive.

In other words, the best way to take advantage of the opportunity ahead is to work with a financial professional who can see the full picture of your financial and tax situation. Your adviser can then assemble the right team and put a plan in place that ensures you can benefit from the exemption now and preserve wealth for generations to come.

Consider taking action now

Do not delay this any longer. The clock is ticking. Given everything involved with estate planning of this magnitude, the time to act will expire faster than you may think. Lead time for some individuals can be anywhere from six months to longer than one year.

It is not a quick process to figure out how much of your wealth you can transfer, to whom or in what form (e.g., should your children receive cash or a portion of the family business? How much? Should they receive it outright or in trust?). And even after the big decisions are made, getting analyses done and documents drafted by attorneys, accountants and other advisers is not always a quick endeavor.

You also need to consider the unprecedented demand and competition for qualified professionals — attorneys, accountants, etc. — and how that will affect your timeline for getting a plan into place and executing it.

The future of the tax code will always be in flux. Trying to anticipate these changes can be difficult, if not impossible. Instead, investors, business owners and people with inherited wealth should prioritize flexibility to build protection against future uncertainty.

If the higher exemptions are extended, you’ll have already locked in the benefits ahead of time. Get in touch with a qualified financial planner now to help guide you through the process and create a long-term plan that meets your needs.

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