The Federal Gift and Estate Tax applies to any transfer from one individual to another whether it is a gift made during lifetime or a gift or bequest made through your estate. The tax – sometimes called the “transfer tax” – can be as high as a hefty 40% of the amount transferred. However, most taxpayers do not pay this tax because you are allowed to pass a significant amount tax-free. In 2024 the tax-free amount is $13.61 million per taxpayer. This means that you can give a combination of lifetime gifts and gifts through your estate totaling $13.61 million before encountering the Federal Gift and Estate Tax. The exemption is a combined $27.22 million for a married couple.
However, the tax-free amount is scheduled to be reduced by half beginning in 2026 when many provisions of the Tax Cuts and Jobs Act of 2017 expire. Congress may or may not extend or expand the 2017 law before it expires. The debate has already begun, but the outcome is far from certain. In the meantime, there are some planning steps you may wish to consider.
Here is the key information about these potential changes and opportunities:
The Tax Cuts and Jobs Act of 2017 doubled the Estate and Gift Tax Exemption – the tax-free amount for the total of all lifetime gifts and bequests to heirs – and introduced annual inflation adjustments. Like many other provisions of the 2017 law, the increased tax-free amount will expire at the end of 2025. If this comes to pass, the tax-free amount will drop to around $6.8 million beginning in 2026.
A decrease in the amount of the tax-free exemption will cause more individuals and estates to be subject to the Federal Gift and Estate Tax. Especially for high-net-worth individuals and families, there is a potential window of opportunity to reduce future Gift and Estate Tax burdens. For example, you could accelerate bequests you planned for your heirs by making taxable gifts during your lifetime to take advantage of the more generous tax-free amount before it expires at the end of 2025. You might leave assets to St. Mark’s in your will to both reduce the size of your estate and support the School’s mission. Additionally, you might consider making St. Mark’s a beneficiary of your IRA or retirement plan and the School will receive 100% of what you designate.
Estate planning can be complex, and you should consult with your own advisors to ensure your plan is crafted to meet your needs. It is also important to note that Congress may extend or modify these provisions before the end of 2025. Your advisor can help you explore the opportunities to plan ahead for the possibility of these changes. We would be happy to provide more information or to collaborate with you and your advisors.