When the Tax Cuts and Jobs Act (TCJA) was passed in 2017, it brought about substantial changes to the tax code such as lowering tax rates and increasing standard deductions.
Most important, it almost doubled the estate and gift tax exemption to $11.18 million for singles and $22.36 million for couples. In the years since, this figure has risen to $12.92 million per individual and $25.84 million per couple. However, these exemptions will be reduced by half and adjusted for inflation as of January 1, 2026.
Unfortunately, these sunsetting provisions will further complicate the tax landscape. If no new legislation is passed before the end of 2025 the U.S. tax code will revert to pre-2018 and many Americans could lose their tax breaks and face new tax liabilities.
With potential new tax laws on the horizon, now is the perfect time to consider estate planning changes. Rather than waiting until the law sunsets, start a conversation with your attorney now and see how these changes could affect your future taxes.
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Despite the looming tax changes with the 2025 sunset, planning ahead can make all the difference. Proactive estate planning changes and smart wealth management are key to navigating the coming future of taxes, whatever it may be. By planning for growth and staying ahead of the curve, individuals can position their finances to handle whatever comes their way.
For instance, a couple worth $12 million now may not see the need for a trust strategy, yet with a potential 6% annual growth, they could surpass the expected $14 million exemption threshold by 2026. By transferring or gifting assets now, you can capitalize on exemptions that might vanish post-TCJA.
Taxpayers have various options to transfer assets tax-efficiently, thereby aligning with their financial and legacy goals. The simplest strategy is to use the annual gift tax exclusion, set at $17,000 per person for 2023. If you are married, then you can double this amount. By repeating this process for 2024 and 2025, you could potentially reduce your taxable estate by a considerable amount.
Alternatively, individuals and couples can allocate a part of their current estate and gift tax exemption into an irrevocable trust for their heirs. To potentially lower estate taxes further, consider leaving your assets to a charity which can reduce your taxable estate and have a philanthropic impact in the world at the same time.
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It’s important to realize that the TCJA didn’t universally benefit all taxpayers. If the tax laws sunset after 2025, you might actually experience some positive effects. For example, personal deductions and unlimited state and local tax deductions may return.
It’s still important to review your estate plan periodically. Life changes such as marriage, health issues, buying a home, or having a child, any one of which can affect your trusts and estate and tax exemptions. You may even need to reconsider your Trustees or Executors or change the terms for your Beneficiaries.
If you are looking for advice or legal help navigating estate planning tax laws, then the law firm of Hatley Law Group A P.C. is at your service. As a premier California estate planning attorney, Rod Hatley offers a comprehensive approach to family wealth planning and asset protection. With his guidance and expertise, you can secure a legacy that will stand the test of time.