Changes to tax laws happen so often they can be hard to keep track of. As different presidential administrations make reforms and updates to tax law, tax authorities also make frequent regulatory changes. One such change is the annual adjustment of exemption amounts.
The estate tax exemption determines at what point estate assets become taxable. For example, in 2023 an estate worth 12.92 million dollars or more would be subject to the federal estate tax. The specific amount of exemption has varied over the years and typically adjusts due to legislation and inflation.
This is similar to the gift tax on large gifts of cash, but the estate tax exemption is only applicable to assets transferred at the owners’ death. There are also generation-skipping transfer tax exemptions, which account for estate transfers that skip generations, i.e. from a grandparent to a grandchild.
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$5 Million per Person
In 2017, the Tax Cuts and Jobs Act increased gift and estate tax exclusion amounts for the years of 2018-2025. These amounts have since reached record heights and will only increase as we move toward 2024 and 2025. But what happens in 2026?
While the estate tax exemption is not ending completely, it will be reduced to $5 million per person and $10 million for married couples, the same amount as it was in 2017, adjusted for inflation. This means that estates valued between $6-$12 million that were previously exempt will now be subject to taxation. The same is true of gift taxes, so if you have high value gifts to give, now is the time.
Are you planning to pass on your wealth to your children or grandchildren? There are many ways to give larger monetary gifts and your estate planning attorney will be able to guide you in creating a gifting strategy to align with your estate plan and minimize taxes.
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Protecting your estate
Knowing the estate tax exemption and its scheduled changes is crucial for building effective estate planning strategies. And with the 2024 presidential election on the horizon, you can also see how politics can affect estate planning and what to be prepared for in 2026.
The estate planning law firm of Hatley Law Group APC was founded with the intent of helping parents leave a meaningful and lasting legacy for their children and grandchildren. Contact us to find out more. We are based in San Diego and meet with clients across California.
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