On Monday, November 11, all Pinnacle offices will be closed for the Veterans Day federal holiday. 2024 Federal Holiday Closures
On Monday, November 11, all Pinnacle offices will be closed for the Veterans Day federal holiday. 2024 Federal Holiday Closures
As of 2024, the Federal Estate Tax Exemption is $13,610,000. While 2017’s Tax Cuts and Jobs Act (TCJA) made permanent tax changes for corporations, the tax benefits for individuals will sunset on December 31, 2025.
On January 1, 2026, the income and estate taxes will revert to pre-2017 law. Thus, the Federal Estate and Gift Tax Exemption will be cut roughly in half, and the income tax rates will also jump. Our current estate tax exemptions are much higher now than they have ever been. If Congress does nothing, the exemption will significantly decrease. This presents an opportunity to save taxes by acting now.
The federal estate and gift taxes are taxes on an individual’s right to transfer property during life and at death. The Federal Estate and Gift Tax Exemption provides an amount that you can transfer during life or at death without paying taxes. From the 1970s through the late 2000s, this exemption slowly crept from $120,000 to about $3,500,000. In that same time, the rate has dropped from over 70 percent to 40 percent. In 2010, the estate tax was briefly eliminated; however, it came roaring back in 2011 with an exemption of $5,000,000. Since 2011, the exemption has been indexed for inflation.
Tax Cuts & Jobs Act. In 2017, President Trump signed into law the Tax Cuts and Jobs Act. The TCJA made significant changes to taxes for individuals and corporations. Those changes included:
As of 2024, the Federal Estate Tax Exemption is $13,610,000. Keep in mind that this is per person. Thus, a married couple can move twice as much.
The tax benefits for individuals will sunset on December 31, 2025.
Consider an unmarried individual had an estate valued at $20,000,000 and had made no prior gifts (using simplified math for hypothetical purposes):
Death 2025
Death 2026
As you can see in this simplified example, the difference is an increase in estate taxes by more than $3.5 million. For a married couple, the results are even more pronounced.
What can you do? Use your exemption now while it is high by making a gift! Making a gift today can FREEZE your exemption at the historically high temporary amount. If you are unmarried, this can be a bitter pill to swallow. Sure, you would love to save estate taxes, but that benefits your family—not you! While planners have devised clever ways to retain some level of control or to provide income to you to offset the loss from the gifted assets (e.g., fees to you for managing assets), care must be taken in planning.
For instance, to use your exemption, a husband could create and fund a trust for his spouse. This planning opportunity is usually referred to as a Spousal Lifetime Access Trust (SLAT). The SLAT allows you to use your exemption while still having access to the assets indirectly through your spouse as a beneficiary.
There may also be some asset protection benefits available to you through the SLAT. Assets in a SLAT are generally unavailable to your creditors (because you gave them away—unless you were left insolvent by the gift) and are also not available to the beneficiary’s creditors.
There are many other arrows in the estate planning quiver that work well for different families and different types of assets.
Don’t wait until the end of 2025 to act. In 2021, many speculated that congress would act to drastically decrease the exemption. While the tax did not change, legal, accounting and valuation professionals were swamped with work which proved to make year end planning near impossible.
The Bottom Line: We cannot know what will happen with taxes in the future. We must plan based on what we know today. Planners have many tools to help individuals reduce the burden of estate taxes. We’re here to help. Act now to ensure the best result.
1 Estimated inflation adjusted Federal Estate Tax Exemption for 2025
2 Estimated inflation adjusted Federal Estate Tax Exemption for 2026
Pinnacle Financial Partners does not provide legal or taxation advice. This summary is designed to provide educational and/or general information and is not intended to provide specific legal, accounting and/or tax advice. For specific advice on these aspects of your overall estate or financial plan, you should consult your professional advisors, applicable law and the legal instruments which are summarized herein.
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