Preparing for the Sunset of the Present Gift and Estate Tax Exemption

The 2017 Tax Cuts and Jobs Act (TCJA) doubled the federal gift and estate tax exemption. It presently allows an individual to shield up to $13.61 million from estate or gift tax over their lifetime. However, when the provisions sunset at the end of 2025, the exemption will revert to about $5 million per individual unless new legislation is enacted. Without proactive planning, assets above the exemption limit could be taxed at a rate of up to 40 percent, significantly eroding wealth for future generations. 

However, estate planners still have the opportunity to take advantage of the current exemption. Here are steps and strategies individuals can employ in 2024 to maximize benefits:

1. Use the lifetime gift tax exemption now — High-net-worth individuals can transfer assets up to the current exemption limit without triggering gift taxes. Gifts made in 2024 will not be “clawed back” when the exemption decreases. A couple can gift a total of $27.22 million in assets tax free.
2. Make annual exclusion gifts — Continue using the annual gift tax exclusion, which allows individuals to gift $18,000 per recipient (couples can give $36,000) without using their lifetime exemption. Example: A couple with four children and eight grandchildren can gift $432,000 annually tax-free.
3. Fund irrevocable trusts — Establish irrevocable trusts, such as a spousal lifetime access trust (SLAT), for asset protection and tax benefits. These trusts allow individuals to remove assets from their taxable estate and, in the case of a SLAT, permit indirect access to the funds. Example: A SLAT funded with $10 million in 2024 locks in the current exemption while allowing a spouse to access trust income if needed.
4. Leverage valuation discounts — A donor gifting interests in closely held businesses or real estate partnerships can take advantage of valuation discounts for lack of marketability and control, thus reducing the taxable value. Example: A 30 percent ownership stake in a family business valued at $10 million may qualify for a 20 to 30 percent discount, lowering the taxable amount to $7 to 8 million.
5. Create grantor retained annuity trusts (GRATs) — These trusts allow individuals to transfer assets with minimal gift tax impact while potentially removing future appreciation from their estate. Example: A GRAT funded with $5 million of rapidly appreciating stock in 2024 can return the principal to the grantor while passing significant appreciation to heirs tax-free.
6. Charitable Giving Strategies — Use charitable remainder trusts (CRTs) or donor-advised funds (DAFs) to reduce taxable estates while supporting philanthropic goals.

Taking action in 2024 can lock in significant tax savings and preserve wealth for future generations. Individuals and couples should consult an experienced tax and estates professional to develop plans that align with their needs and minimizes tax exposure. A knowledgeable estate planning attorney can tailor strategies to particular goals and circumstances and coordinate with CPAs to manage tax implications. An attorney can also monitor legislative developments and readapt plans based on any changes.

Peggs Wheeler, LC in Wichita provides advice on estate planning to clients throughout Kansas. Call 316-512-7853 or contact us online to schedule a free initial consultation.