NEARLY DOUBLE THE REASONS TO GIFT

(but NOT for much longer)

The Tax Cuts and Jobs Act of 2017 (TCJA) nearly doubled the gift and estate tax exclusions (collectively known as transfer taxes), providing High Net Worth Individuals (HNWIs) an enhanced opportunity to gift increasing amounts before the temporary provisions of the TCJA sunsets at the end of 2025. Anytime an individual considers irrevocably transferring assets to another, the main questions are: 1) how will this impact my long-term goals and objectives?; and 2) what is an appropriate amount to transfer to another? However – with the exclusion set to expire in the near future – now is the best time to understand the implications of utilizing some or all the enhanced exemption amounts. Working with an advisor to plan prepares you and your loved ones for the future, no matter what that may look like.

NOW FOR A HISTORY LESSON:

• In 2017, the Tax Cuts and Jobs Act raised the estate tax exemption amount from $5.49m up to $11.18m for single individuals and from $10.98m to $22.36m for married couples (through a federal rule called “portability”).
• With inflation, these amounts increased to $13.61m (single) and $27.22m (married).
• On January 1st, 2026, the enhanced exemption amount will return to the pre-TCJA exemption amounts of $5m and $10m, respectively (adjusted for inflation).

As of today, there is a year and a half until the exemption drastically decreases unless renewed. If Republicans take the executive and legislative branches this November, the laws will likely be reenacted with the possibly of the exemption becoming permanent. If Democrats take the executive and legislative branches, the laws will almost certainly sunset in addition to the creation and implementation of new tax laws. If there is a split between the branches, the gridlock will most likely block compromise, meaning the laws will sunset and revert to pre-TJCA levels. Regardless of election results, the good news is that whatever amount of exclusion you use up in the next year and a half cannot be taxed, even after 01.01.2026. Planning ahead and pivoting accordingly is therefore the best way to prepare with the uncertainty of outcome. If this exclusion is appealing to you or you would like to discuss it further, please reach out to a wealth advisor to discuss your next steps.

To simplify this, let us look at two scenarios

Ex.) Jenna is a single individual residing in the United States. She enjoys playing tennis on the weekends and watching as the Chicago Cubs push for the playoffs. Jenna has never gifted in her life and is exploring her options.

SCENARIO A

• Jenna gifts $5m in excess of the annual gift tax limit on July 20th, 2025.
• Jenna does not gift anything else that year but wants to make another gift during 2026.
• Jenna makes an appointment with her estate planning attorney, and they inform her that she only has a few hundred thousand dollars left of her lifetime exemption because she waited until after the deadline.

SCENARIO B

• Jenna meets with her estate planner and tells them that she wants to gift a considerable sum of money.
• She learns about the estate tax-exclusion reduction, and together the two decide to be proactive under current legislation.
• Jenna gifts $4m in excess of the annual gift tax limit to one family member and $3 M in excess of the annual gift tax limit to another in late 2024.
• In 2025, she gifts another $4m in excess of the annual gift tax limit before the reduction comes.
• By the 01.01.2026 deadline, Jenna gifted $11m of tax excluded gifts, nearly double the amount as if she had not been informed.

The primary consideration an individual should undertake is whether they can afford to give away their assets and still maintain their long-term goals and objectives. Assuming that individual can, an understanding of the estate tax considerations helps maximize the power of your dollar. After the exemption sunsets, your estate may face greater tax implications than if you make the same financial decisions today. If interested in more options, please schedule a time to talk with your wealth advisor to determine whether you can take advantage of this enhancement.

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SOURCES

Estate and Gift Tax FAQs | Internal Revenue Service (irs.gov)

Estate and Gift Taxes | Internal Revenue Service (irs.gov)

Estate Tax Exemption Sunset 2026: What You Need to Know | Commerce Trust (commercetrustcompany.com)

How to Prepare for Upcoming Estate Tax Law Changes | Kiplinger

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