The current estate and gift tax exemption presents a unique opportunity for high-net-worth individuals and families to strategically plan their estates and reduce future tax liabilities. With the exemption set to sunset at the end of 2025, now is the time to consider gifting to offshore trusts or even creating new ones to maximize the benefits of the elevated limits.
Understanding the Current Exemption
As of 2024, the estate and gift tax exemption is $13.61 million per person, up from $12.92 million in 2023. This elevated exemption is a result of the Tax Cuts and Jobs Act (TCJA), which doubled the exemption amount for tax years 2018 through 2025. However, this benefit is temporary and will revert to the pre-TCJA level on January 1, 2026. It is projected that the exemption will be around $6.8 million post-sunset.
Benefits of Gifting Now
The Double Exemption provisions of the TCJA are set to sunset on December 31, 2025, essentially cutting the estate and gift tax exemption in half. This change will bring the exemption down to around $6.8 million, depending on inflation. Using the elevated exemption for gifting before the sunset can result in substantial tax savings. The impact of this sunset can be illustrated with a married couple with a $30 million estate:
Potential Estate Taxes During 2024
Total Estate of Married Couple: $30,000,000
2024 Estate Tax Exemption per person: $13,610,000 ($27,220,000 combined)
Previous Taxable Gifts:
Spouse 1: $100,000
Spouse 2: $100,000
Remaining Estate & Gift Exemption = $29,800,000
Taxable Estate = $29,800,000 – $27,220,000
Taxable Estate = $2,580,000
Estate Tax Due (40% estate tax rate) = $1,032,000
Potential Estate Taxes During 2026:
Total Estate of Married Couple: $30,000,000
2026 Estate Tax Exemption per person: $7,000,000 ($14,000,000 combined)
Previous Taxable Gifts:
Spouse 1: $100,000
Spouse 2: $100,000
Remaining Estate & Gift Exemption: $29,800,000
Taxable Estate = $29,800,000 – $14,000,000
Taxable Estate = $15,800,000
Estate Tax Due (40% estate tax rate) = $6,320,000
Steps to Take
Review Your Estate Plan: Evaluate your current estate plan with your financial advisor and tax professional to understand how the upcoming changes will affect your estate.
Consider Lifetime Gifting: Utilize the current exemption to make significant gifts to beneficiaries, either outright or through trusts.
Explore Offshore Trusts: Investigate the benefits of offshore trusts for asset protection and tax efficiency. Setting these up now provides a streamlined way of managing estate planning matters to take advantage of the current exemptions.
The sunset of the TCJA provisions at the end of 2025 creates a limited window to take advantage of the elevated estate and gift tax exemptions. By acting now, high-net-worth individuals can significantly reduce their future estate tax liabilities and protect their wealth for future generations. Contact us to develop a comprehensive plan that aligns with your goals and maximizes the current tax benefits.
