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Communication and planning have always been essential when attempting to transfer wealth efficiently. Tax planning can also play a significant role for larger estates. Currently, the federal estate tax laws are very generous, however, when the 2017 Tax Cuts and Jobs Act (TCJA) rules expire at the end of 2025, that might not be the case. We believe in proactive tax planning and waiting until the tail-end of these time constrained rules could cost you. We like to be ahead of changes, especially when it comes to potentially major tax liability.

The Tax Cuts and Jobs Act (TCJA)

Starting in 2018, the TCJA doubled the estate and gift, and GST tax exclusion amount. As our chart shows, this exclusion has moved from $5.49million for an individual in 2017, all the way up to $13.61 million in 2024. For couples in 2024, the tax exclusion is $27.22 million.

The doubled amount sunsets, or expires, on December 31, 2025. For high-net-worth individuals, this could affect wealth transfer strategies. As the tax law presently stands, the current lifetime estate and gift tax exemption will revert to pre-TCJA levels and will be cut in half and adjusted for inflation on January 1, 2026. With current inflation statistics, this could bring the amounts to around $7 million for individuals and $14 million for couples in 2026.

While many Americans do not need to worry about this sunsetting tax law, as their net worth does not meet the minimum, it is still important that they have estate planning documents to help transfer assets and wealth to their loved ones efficiently. Also, some states have estate tax transfer taxes that start at much lower levels than the federal amount. For those who are close to the potential after sunset federal limits, but not there yet, they should watch the growth of their net worth to stay on top of it. Wealthy individuals and families should not procrastinate, and we recommend planning now to ensure preparedness for the pending drastically reduced limits.

In this article we want to provide you with valuable information. However, navigating estate planning can be challenging and difficult, so checking with both your estate planning professional and financial professional is always advised. We are always available if you have any questions regarding your personal financial situation.

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