The current estate tax and trust exemption of $13.6 million per individual, or $27.2 million per married filing joint couple, will soon sunset. When it does, the exemption, adjusted for inflation, is expected to drop to around $7 million per individual, or roughly $14 million per couple.
“That’s a $13 million difference in the lifetime gift tax exclusion exemption amount,” says Andrew Schuler, CPA, Senior Manager at Corrigan Krause. “Anyone who has at least $14 million or more in total estate value should be concerned and working to shield that money from the impending taxation as soon as possible.”
The changes are set to take effect January 1, 2026, with the expiration of the Tax Cuts and Jobs Act, and it’s unlikely the current exemption level will survive beyond that.
Smart Business spoke with Schuler about what needs to be done now to protect personal wealth before the law changes.
Who does this change affect?
Those who have a high estate value, i.e. estates valued over the current $13.6 million, or $27.2 for married couples filing jointly — have a clear opportunity to maximize the full exclusion amount before it drops down to the lower rates in 2026. But for an individual whose total estate value is between the two exemption amounts — say, $10 million — they need to decide whether to make a gift now or wait. There are many creative planning tactics to leverage the estate tax exemption, but it often takes expert guidance to execute those effectively.
While those who are most impacted by this change are likely aware this is coming, they may not have started the conversations with their advisory team. Others may be facing a major liquidity event, such as the sale of their business or a significant inheritance, and suddenly enter a situation where this is applicable. For anyone who is going to be impacted by this change in any way, they need to start having conversations with their team now and not wait months to act when there’s a greater chance that it’s too late.
What are some potential ways to leverage the exemption?
One option is to take advantage of the annual gift exclusion. For 2024, the amount is $18,000 that can be given by one individual to another tax free both ways. For a couple, the amount is $36,000. In 2025, that amount goes up by $1,000. So, this year, a husband and wife can each give to a daughter and son-in-law $36,000 each without impacting their annual exclusion limit. That also helps lower the couple’s total estate value without any tax implications.
Another way to reduce estate value that does not count toward the annual exclusion is funding a family member’s tuition. That could be paid directly and it’s not reportable. That creates a way to reduce the value of the estate while not going against the exemption amount and not having any tax implications.
Funding a 529 plan is another option in Ohio that doesn’t count against the exemption. The college advantage savings plan grows tax free and covers tuition-related expenses. It can be funded up to five years in advance. That can be done for as many family members as possible.
Why is it important to act now?
Everybody’s situation is different. To help make decisions on how to achieve their financial goals through this exemption, the first step should be meeting with advisers — an attorney, financial adviser, accountants — and work with them together on estate gift trust planning. But they need to act now. There are only 13 months to set plans in motion to take advantage of the current estate tax exemption. That might sound like a lot of time, but it’s not. It requires discussing a plan of action, then executing that plan, which could potentially include setting up new trusts, moving money around, identifying the desired charities to support and directing that money to where it should go. It’s not something that can be done in the matter of a few weeks or months. The more time those decisions and actions are delayed, the harder it is to take advantage of what’s available.
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