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As part of the Tax Cuts and Jobs Act of 2017, the federal estate, gift and generation-skipping transfer (GST) lifetime tax exemption doubled from $5.49MM in 2017 to $11.18MM in 2018, which has since increased to $13.6MM in 2024 as it is indexed for inflation. For married couples, each spouse has the $13.6MM exemption, which means you and your spouse may give away a total of $27.2MM before paying the federal gift tax.
However, unless Congress acts before January 1, 2026, the exemption will automatically reset to approximately $7MM, significantly reducing tax-free gifts. This reversion could lead to significant tax liabilities for those whose estates surpass the reduced exemption limit. If your assets exceed this threshold, your heirs could find themselves with a hefty tax burden.
Below are a few ways to take proactive measures now:
1. Lifetime giving: A direct gift of cash, securities, investments, businesses, real-estate or any other assets with value up to the lifetime exemption is the simplest strategy.
2. Establishing trusts: The immediate act of giving $13MM to your heirs may have unintended negative implications, which can be mitigated with creation of irrevocable trusts, which can permit withdrawals based on pre-specified schedules and conditions.
If you need further advice or have specific questions, please contact your financial advisor and/or a tax professional to navigate these changes effectively.
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