Time Is Running Out on Estate Tax Limits 

August 2, 2023

By Samuel Irvine, CFP®, CRPC®

Estate tax limits are slated to sunset at the end of 2025, barring action from Congress, and will send estate and gift tax exclusions back to pre-2017 levels of $6.8 million for individuals (adjusted for inflation).  

Thanks to the Tax Cuts and Jobs Act (TCJA), the federal estate tax threshold rose to $25.84 million in 2023 for married couples and $12.92 million for individuals. We could see additional increases in 2024 and 2025 for inflation – but the clock is ticking, and those high limits will be temporary. The federal estate tax is anticipated to increase to a maximum of 45% vs. the current 40% rate.  

For most Americans, this is a non-issue. But for high-net-worth individuals and business owners, you should reevaluate your financial strategies as soon as possible. If you believe you will be impacted by the gift and estate tax sunset, here are a few strategies to consider:  

Give to charity. By making a gift to a charitable organization, you’re doing a good deed, as well as reducing your assets. When you reduce the size of your taxable estate, you’ll lower your income taxes and avoid capital gains taxes.  

Spend down your assets. If you’ve worked hard and saved wisely, spending your hard-earned cash can reduce the size of your estate – and bring a great deal of personal fulfillment. While being frugal may have led to your success, enjoying a vacation, fine dining or an international adventure might be more worthwhile than seeing those funds on a tax bill.  

Create a trust. If you want to pass assets to heirs while avoiding estate taxes on transferring wealth, giving assets to a trust is a smart strategy. A wealth advisor can counsel you on what type of trust best fits your needs, such as an irrevocable or revocable trust, a charitable trust or an irrevocable life insurance trust. Your gifts to the trust can grow tax-free and then be passed on to beneficiaries free of the federal estate tax.  

Although the sunset is looming on the horizon, the good news is that it’s still a few years away, but maximizing the full amount of any remaining exemption now may be paramount to long-term success. And there’s more good news: we can help you with your estate strategy, regardless of whether Congress decides to maintain the current threshold.  

To learn more about how we can assist you with your long-term goals, contact your Davie Kaplan CPA for more details.  

Categories: Tax Planning