The Internal Revenue Service (IRS) recently announced an increase in the estate and gift tax exemption for 2025. The basic exclusion amount will increase to $13.99 million per person for transfers during life and after death.
The Tax Cuts and Jobs Act (“the Act”) is the federal legislation that doubled the exclusion to $11.18 million in 2018. However, the Act is set to expire at the end of 2025 unless Congress takes action to renew it or pass other legislation retaining the current exemption. If Congress takes no action and the provision expires, the estate and gift tax exemption will fall back to the 2017 amount of $5,490,000.
Since the amount of the estate and gift tax exemption could change quite drastically at the end of 2025, you need a Pembroke Pines estate planning attorney at Kramer Green to review your estate plan and ensure that you are prepared for all contingencies. We also recommend 4 steps that you may want to take in preparation for the potentially substantial decrease in the exclusion.
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Make Gifts Now
High net-worth individuals should fully utilize current annual federal gift tax exemption amounts. This strategy allows you to transfer more of your wealth to your loved ones now without taxation that might occur if the estate and gift tax exemption substantially drops. You can reduce your taxable estate without any gift tax consequences and still achieve your goal of passing your assets to your heirs. The annual gift tax exclusion will rise to $19,000 in 2025, up from $18,000 in 2024.
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Make Charitable Donations Now
If you plan to make charitable bequests at your death, you can donate to those charities now. Again, these gifts reduce your taxable estate and fully utilize available exemptions that no longer will be available to you after death.
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Consider Establishing Trusts
Depending on whom you want to benefit from your wealth, you may be able to establish trusts that help you reach your objectives while reducing your taxable estate and using your annual estate and gift tax exemption. For instance, you could use a Spousal Lifetime Access Trust (SLAT) to transfer assets to your spouse while still having access to income during your lifespan. The SLAT allows a spouse to gift assets to the other spouse tax-free up to the exemption amount. The trust is flexible in that the non-gifting spouse remains a potential beneficiary of the income from the trust throughout their life. Upon the beneficiary’s death, the proceeds from the spouse can go to their children or other named beneficiaries.
If you don’t want to directly gift money to an individual who is still a minor, or you want to put some restrictions on your gifts, you could consider establishing an irrevocable trust for the minor. You can use the annual gift tax exemption to make the gift to the trust, where it can continue to grow for the benefit of the minor under the terms and conditions that you dictate.
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Purchase Life Insurance
Life insurance proceeds are liquid assets that often are highly useful immediately following a person’s death. You can keep life insurance policy proceeds out of your taxable estate by placing them in an irrevocable life insurance trust (ILIT). Your surviving family members then will have the funds to cover estate taxes as needed without affecting the amount of their inheritance.
You also can use an ILIT to set when and under what conditions a beneficiary receives the life insurance proceeds. For instance, you may want to safeguard the life insurance proceedings for your child to use solely for higher education or limit access to the funds until the child turns 25 or older.
Look to Kramer Green for Advice about Your Estate Plan
A Fort Lauderdale estate planning lawyer at Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. can assist you with all aspects of your estate plan, including making the most of your estate and gift tax exemptions. We know how to best structure your estate plan to preserve assets and handle the ever-changing laws that directly affect your estate, both now and in the future.
We are here to guide you through the complex legal estate planning process. Contact our office today at (954) 966-2112 or online to schedule a time to discuss your estate planning issues with our Hallandale Beach estate planning attorney.