Be Prepared for Adjustments to Estate Tax Limits

Monday Feb 5th, 2024

Current estate tax limits are expected to sunset at the end of 2025. Unless Congress takes action, estate and gift tax exemptions will revert to pre-2017 levels of $6.8 million for individuals (adjusted for inflation).

The (TCJA) Tax Cuts and Jobs Act increased the federal estate tax threshold to $25.84 million for married couples and $12.92 million for individuals. There could be additional increases this year and in 2025 for inflation – but time is of the essence, and those high limits could be temporary.

Families anticipating potential estate tax liability in 2026 could gain advantages by transferring assets, along with their appreciation, out of their estate sooner rather than later.

Furthermore, the existing maximum rate for gift and estate tax is set to rise to 45% (up from the current 40% rate). For many people, this change won’t have an impact. However, for high-net-worth individuals and business owners, it’s important to take a close look at your financial strategies.

If you believe the estate and gift tax sunset might impact you, here are a few things to consider:

Spend down your assets. Utilizing your cash now not only reduces the size of your estate but can also be a pleasurable experience (providing it doesn’t create an income tax implication). You could also consider taking advantage of the current higher exemption by making gifts now. While many people develop estate plans to leave gifts after their death, giving gifts now would leverage the current rate, as well as give assets more time for investment growth for the benefit of the heirs.

Donate to charity. Making a charitable gift is a great way to not only support organizations and causes you care about, but also to reduce the size of your taxable estate – lowering your income taxes and avoiding capital gains taxes.

Develop a trust. This is one of the best ways to pass assets on to successors while avoiding estate taxes on the transferal of wealth. Our team of financial advisors can provide guidance on the best type of trust to meet your needs, such as a charitable trust or irrevocable trust, as not all trusts offer tax benefits. Gifts to the trust are tax-free and can also be passed on to beneficiaries, free of the federal estate tax.

If you already have a trust, we recommend consulting your attorney to ensure everything is up to date. Then, bring us a copy of your updated trust that we can keep on file.

To learn more about how we can help with your long-term goals and estate planning, contact us.

591 West Hamilton Avenue
Suite 201
Campbell, CA 95008

Phone: 408-871-5900

Fax: 408-871-5905

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