Estate and Gift Tax Exemption – Use It or Lose It? It’s Anybody’s Guess
December 30, 2024 – Wealth ManagementPublished in Wealth Management. Access may require a subscription.
There has been much speculation and anticipation about the scheduled sunset of the Federal estate and gift tax exemption, which is currently $13.61 million per person in 2024 (and rising to $13.99 million in 2025). In 2017, President Trump, with a Republican majority in both the House and Senate, signed the Tax Cut and Jobs Act (TCJA) into law, which doubled the federal estate and gift tax exemption to its current amount. In order to achieve passage of the bill, the legislative compromise was to enact a sunset on the measure. The increased exemption is slated to expire at the end of 2025, when the estate and gift tax exemption will be cut in half. Absent Congressional action, the post-sunset exemption will be approximately $7 million per person in 2026, according to current predictions.
The estate and gift tax exemption is the cumulative amount that a U.S. person can give or bequeath to another individual, free of transfer tax, during his or her life and at death (excluding any gifts or bequests to a U.S. spouse, which currently are exempt from estate or gift tax). Once this exemption has been utilized, any gratuitous transfer will be subject to gift tax (if the gift occurred during the transferor’s life) or estate tax (if the gift occurs at the transferor’s death) at a current rate of 40%. Note that, separate from and unrelated to the estate and gift tax exemption, every U.S. person also has a gift tax “annual exclusion amount”. This allows a taxpayer to gift up to a certain amount annually to as many individuals as he or she wishes, free of any gift tax consequence, without reducing the taxpayer’s estate and gift tax exemption. The annual exclusion amount is currently $18,000 in 2024 and rising to $19,000 per donee in 2025.
Post-election, we can now better assess the attitude of Congress regarding the scheduled sunset of the estate and gift tax exemption. It is more likely than it was preelection that the elevated estate and gift exemption will be extended, if not made permanent. With the election of President Trump, and Republican majorities in the Senate and the House of Representatives, it is conceivable that the provisions of the TCJA will at least be extended for another period. However, other factors, such as concerns about the size of the Federal deficit and the 2026 mid-term elections, may weigh against an extension of the TCJA.
There are many strategies that estate planning attorneys can implement to mitigate or eliminate the impact of estate and gift taxes. With the proper planning, those taxpayers subject to transfer tax can employ several effective techniques to lessen the burden of estate and gift tax and help reduce any anxieties around keeping abreast of transfer tax legislation.