April Alert: Estate Tax Planning in the Shadow of the Upcoming Exemptions Sunset
They say that April showers bring May flowers, but what does the April 15th tax deadline bring? Well, if you have a taxable estate under current exemptions or own any rapidly appreciating assets such as real estate or business interests, breezing past this year’s tax season should bring a renewed focus on the upcoming Federal Estate Tax Exemptions sunset at the end of 2025 (sidebar: isn’t sunset much too lovely of a term to use to describe taxes??)
You may be wondering why this should be on your horizon… allow us to shed light on the impending sunset in 2025 and why taking action now is imperative.
Understanding the Shift: Sunset Explained
As of today, in 2024, the Federal Estate Tax Exemption (the amount that you can leave to your children without the government taking 40% of anything over that threshold) is at a record high – $13.61M per person. A married couple who both passed away this year could transfer just north of $27M to their children tax free.
HOWEVER – under current law, at the end of next year, these exemptions are scheduled to sunset back down to 2018 levels (which were $5M per person)… with inflation, we estimate that this will be about $7M per person. That will be the estate tax exemption landscape as of 2026.
But from there – who knows? In the last 25 years or so, the exemptions have been as low as $1M per person and the tax rate for anything above that exemption as high as 55%. Who knows what they will be in the future.
We can know everything about our clients, their families and their estate plans, but we cannot know two things: 1) what their last year on Earth will be, and 2) what the Federal Estate Tax Exemptions will be in that year.
The Demand Surge: Expertise in High Demand
Consider this scenario: as the deadline approaches, the demand for estate planning expertise will skyrocket. Law firms, financial advisors, CPAs and valuation experts will find themselves inundated with inquiries, stretching critical resources thin. Waiting until the eleventh hour will mean missing out on securing vital counsel due to overwhelming demand.
Seizing the Opportunity: Early Action is Key
In light of these challenges, the path forward becomes clear: starting planning now is paramount. By taking proactive steps to address your estate planning needs now, you can safeguard your wealth, optimize tax efficiencies, and navigate the evolving legal landscape with confidence. It’s about seizing the opportunity to secure your financial future and protect your legacy for generations to come.
Strategies to Maximize Exemptions Before 2025
Now, let’s talk strategy. The good news is that in the time leading up to 2025, there are several key tactics you can employ to maximize the benefits of Federal Exemptions before they sunset. These may include:
Lifetime Gifting: Leveraging the current exemption thresholds to transfer assets to loved ones tax-efficiently, and take advantage of the higher exemptions now to move assets out of your taxable estate while you have more exemption available.
Trust Planning: Establishing trusts to hold and distribute assets in a manner that minimizes tax liabilities.
Business Succession Planning: Structuring business interests to take advantage of favorable tax treatment before the exemptions change.
By implementing these strategies sooner rather than later, you can capitalize on the current exemptions and position your estate for long-term financial success.
Act Now – The Window of Opportunity is Finite
Waiting until the fourth quarter of 2025 will not allow enough time for thoughtful implementation of the right techniques. Whether it’s trusts, gifting strategies, or asset protection measures, every aspect of your financial and estate plan requires careful consideration and implementation.
Don’t fall into the trap of false security. Procrastination in this matter could lead to missed opportunities, hefty tax burdens, and legal complications down the road. It’s time to act NOW, while there’s still a window of opportunity to safeguard your wealth and legacy. Call the experts at Legacy Law at 615-933-7636 to get started today!