Preparing for the Sunset: The Importance of Estate Planning in Light of Impending Tax Changes

by Maria Tipton, J.D.

Former President Trump’s Tax Cuts and Jobs Act of 2017 doubled the amount of lifetime federal estate tax exemption for individuals. Following the Act, people have benefitted from historically high gift and estate tax exemptions. This has afforded many individuals and families flexibility with their estate planning due to their estates being under the estate tax threshold. In 2024, an individual may gift up to $13.61 million ($27.22 million for married couples) either during life or at death, without incurring any federal gift or estate tax. If you pass away with assets in excess of your allotted lifetime exemption, that amount is subject to a 40% federal estate tax. For example, if a married couple with a total net worth passes away in 2024 with a combined total estate valued at $30 million, $2.78 million is subject to 40% tax. Using those numbers, approximately $1.1 million would go to the federal government. However, this number could dramatically increase after December 31, 2025.

Unless the tax legislation under the Act is made permanent, the lifetime exemption amount will “sunset” back to pre-2017 figures. Adjusting for inflation, the “sunset” exemption limit for individuals is estimated to be approximately $7 million and $14 million for married couples. Now let’s think about what comprises your taxable estate. In determining your overall estate value, any accounts, properties, business interests, etc. owned in your personal name are added together whether they pass through probate or not. This means your house, 401k values, brokerage accounts, bank accounts, and others. The numbers tend to add up quickly, and suddenly, many more individuals and families will be subject to a federal estate tax. If we apply the “sunset” limits to our previous example, a married couple passing away with $30 million in 2026 will owe approximately $6.4 million in federal estate tax. That is a significant portion of assets not going to their designated beneficiaries. Keep in mind that avoiding the “sunset” requires Congress to proactively make the 2017 Act permanent. Effectively, Congress can raise taxes by doing nothing.

Luckily, there are a number of planning techniques and strategies that can be used to mitigate estate tax exposure. Our wealth advisors will be working with our clients over the next year to determine what planning strategies could be implemented to secure their legacy, achieve their goals, and to reduce estate taxes where possible. For those who have yet to review their estate plans, there's no better time than now to act. Contact your advisor today.

We provide the information in this newsletter for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, investment, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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