The Federal Gift and Estate Tax Exemption
A popular way to save federal estate taxes is for an individual to make gifts during lifetime to take advantage of the federal lifetime gift tax exemption. The federal lifetime gift tax exemption allows assets worth a certain value to be gifted without those gifts being subject to a gift tax. The use of the gift tax exemption results in a corresponding use of the estate exemption upon death.
The Tax Cuts and Jobs Act (TCJA)
Passed in 2017, the Tax Cuts and Jobs Act (TCJA) significantly increased the federal gift and estate tax exemptions to $11.58 million with a flat tax rate of 40%. The exemptions are indexed for inflation adjustments during the years 2021-2025. Married couples each individually receive this benefit. Unused exemption in the first spouse to die’s estate can be ported to their surviving spouse’s estate. This effectively means married couples can gift $23.16 million without estate tax liability. This federal gift and estate tax exemption is the highest in United States history.
Why You Should Take Advantage of the TCJA Now
First and foremost, the Tax Cuts and Jobs Act has a sunset provision which provides that the federal gift and estate tax exemption will return to its 2017 amount of $5.49 million, adjusted for inflation, in 2026. More importantly, however, the current federal gift and estate tax exemption is subject to change at any time by the enactment of a new law. Because this is an election year, there is the possibility that there will be estate tax law changes in the very near future. Some pundits believe that if there is a change in control of the government, the federal gift and estate tax exemption will revert to $5 million.
With possible impending federal gift and estate tax exemption changes, there may be the potential to save millions of dollars in estate taxes by acting now. Regardless of the outcome of the Presidential election, it still may be beneficial for you to take advantage of these tax laws now. The repercussions of waiting can be detrimental to your estate and the amount that your heirs inherit.
What Your Options Are
Fortunately, there are a number of options to take advantage of the Tax Cuts and Jobs Act’s current federal gift and estate tax exemption. An experienced estate planning attorney, like the attorneys at Sessa & Dorsey, are prepared to address this specific exemption and the possible changes to come. We recommend that you consult with your trusted estate planning attorney to determine what are the best options for you and your heirs. In some cases, you may want to gift part of your estate now, in other cases you may want to set up different types of trusts to receive the current benefits and protect your wealth from future changes in the law. The solutions will differ based on your estate and what you plan to do with it.
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At Sessa & Dorsey, we advise our clients on gifts and trusts to meet their specific needs and desires. If you have questions about how to take advantage of the current federal gift and estate tax exemption, please contact us at (443) 589-5600.