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Don’t wait to lock in big estate and gift tax breaks

Online Niel October 31, 2024

Don’t let an unknown tax future catch you off guard. This is the message I have for Americans ahead of a tax change that will affect millions of us.

When it was adopted in 2017, The Tax Cuts and Jobs Act (TCJA) was the most sweeping overhaul of the US tax code in decades. And if certain provisions of it expire in 2025, as planned, virtually every American will be affected if they don’t act now.

The 2024 presidential election is just days away, and with it will likely come many tax changes that will affect millions of Americans. If you haven’t reviewed financial plan recently, and especially those with a year real estate planI cannot stress enough the urgency of taking advantage of these historically high exemptions now, today. Not after the election. Now. This is a unique opportunity to maximize the legacy you leave to your loved ones.

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Tax planning it is a long and involved process and waiting is not a wise option. Whoever your advisor is, contact them today and get them up front to help you navigate the significant complexities involved.

There will always be uncertainty about the future of taxes. In this case, however, you have an opportunity to act now and reap the long-term benefits.

Let’s simplify what’s at stake for Americans

Typically, the federal government imposes a transfer tax of up to 40% on certain transfers of wealth in the form of a property tax which applies to death or a gift tax regarding lifetime transfers. An additional generation skipping transfer fee may apply – potentially up to 40% – if you make these transfers to an additional grandchild or descendant. There could also be state or estate taxes involved, depending on where you live. However, under the TCJA, individuals are currently allowed to transfer a significant amount of assets from their estate without having to pay any federal transfer taxes.

The TCJA provides a lifetime exemption from lifetime and gift taxes of $13.61 million for individuals in 2024 ($13.99 million in 2025), meaning you can gift up to this amount—above which any gift would be subject to a tax of up to 40%.

This exemption is historically high, but may also be limited in time. The increased exemption is scheduled to “tap” after 2025 and drop back down to about $7 million on Jan. 1, 2026.

The only way to take full advantage of the increased exemption is to make significant lifetime gifts before the sunset date.

In particular, these gifts cannot be taxed retroactively unless the provisions of the TCJA are renewed.

Maximizing the benefit of this opportunity often requires an “all of the above” approach that includes trust planning, lifetime gifts, and the use of life insurance. Having a comprehensive and flexible holistic plan that incorporates life insurance can help maximize the amount of assets your heirs receive.

In other words, the best way to take advantage of the opportunity ahead is to work with a financial professional who can see the full picture of your financial and tax situation. Your adviser can then put together the right team and put a plan in place that ensures you can get relief now and keep the wealth for future generations.

Consider taking action now

Don’t put this off any longer. The clock is ticking. With all that is involved in estate planning of this magnitude, time to act will run out sooner than you might think. Delivery time for some people can be from six months to more than a year.

It’s not a quick process to figure out how much of your wealth you can transfer, to whom, or in what form (eg, should your children get cash or a share of the family business? How much? Should they receive directly or in trust?). And even after the big decisions are made, the analysis and drafting of documents by lawyers, accountants and other advisers is not always a quick endeavor.

You also need to consider the unprecedented demand and competition for qualified professionals – lawyers, accountants, etc. – and how it will affect your timeline for implementing and executing a plan.

The future of the tax code will always be in flux. Trying to anticipate these changes can be difficult, if not impossible. Instead, investors business owners and people with inherited wealth should prioritize flexibility to build protection against future uncertainty.

If the higher exemptions are extended, you will have already locked in the benefits ahead of time. Contact a qualified financial planner now to help guide you through the process and create a long-term plan that meets your needs.

This article was written by and reflects the views of our contributing advisor, not the Kiplinger editorial staff. You can check advisor records with help dry or with FINRA.