Have you revisited your estate plan lately? It is wise to review your estate plan now, ahead of the scheduled sunset of the lifetime estate and gift tax exemption in 2025. Here’s what you should know.

What is the lifetime estate and gift tax exemption?

The lifetime estate and gift tax exemption is the amount of money and assets that an individual can transfer to others during their lifetime or upon their death without incurring federal estate or gift taxes.

As of 2024, an individual can give away or transfer up to $13.61 million in assets without facing estate or gift taxes, and for married couples, the combined exemption is $27.22 million.

When is the scheduled sunset of the lifetime estate and gift tax exemption?

As of now, the lifetime estate and gift tax exemption is scheduled to revert back to 2017 levels (indexed for inflation) under the Tax Cuts and Jobs Act (TCJA).

It is possible that Congress will act before 2026 and extend the higher exemption amounts, but for now, it looks like the 2025 sunset is firm.

Here’s a look at the numbers:

What can you do now to plan ahead?

There are some strategies you can avail yourself of now, to start planning for the estate tax exemption sunset. This includes:

Spousal Lifetime Access Trust (SLAT)- Some of the most valuable strategies for reducing potential estate tax liability involves “squeezing” and “freezing” assets — in other words, discounting assets in various ways and locking in lower asset values. A spousal lifetime access trust (SLAT) is one option that can help you achieve the “freezing” by making distributions to your spouse.

A SLAT provides the tax benefits of an irrevocable trust while indirectly giving you access to the trust assets. The unique feature of a SLAT is that it authorizes the trustee to make distributions to your spouse. You also name your children or other heirs as beneficiaries and can apply your lifetime gift tax exemption to contributions to the trust. As with any irrevocable trust, future appreciation on the SLAT assets is shielded from transfer taxes.

Credit shelter trusts (CST)- This is a type of irrevocable trust used in estate planning for married couples. With a CST, one spouse can pass assets to heirs, bypassing estate taxes, up to the exemption limit. This maximizes tax savings by nearly doubling the exemption amount for the couple. Assets in the trust are protected from creditors and can be distributed according to the deceased spouse's wishes.

Whole life insurance (also known as permanent or traditional life insurance) provides coverage for the life of the insured or to a specified age. In addition to providing a death benefit (a payout to the beneficiary of the policy specified by the insured), whole life also contains a savings component where cash value may accumulate. Life insurance proceeds are usually not subject to estate taxes.

Consider a business valuation- If you’re a business owner, you can take advantage of the current lifetime exemption limit by gifting an ownership interest in your business. Check out our recent blog, https://kahnlitwin.com/blogs/tax-blog/thinking-ahead-estate-and-gift-tax-changes-and-business-valuation-services

Questions? Wondering how you can maximize your estate planning? We can help.