Disappearing Estate & Gift Tax Exemptions

How to Take Advantage of Exemptions Before the Provisions Sunset

by Parker Hannahs

The Tax Cuts and Jobs Act of 2017 was created to provide tax reduction and incentives for individuals and businesses. A portion of the law addressed the estate and gift tax exemptions. The many individual provisions of the law will “sunset” by reverting back to the law prior to passage of this tax act, likely resulting in higher taxes for many people. Generally, the changes to the corporate tax provisions are permanent. Here are some of the individual changes to expect effective December 31, 2025:

  • Increased Individual Income Tax rates
  • Greater impact of Alternative Minimum Tax (AMT)
  • SALT deduction cap of $10,000 sunsets
  • The Qualified Business Income deduction of 20% (Section 199A) of profits for “Pass Through
    Entities” sunsets
  • Reduction in the Estate and Gift tax exemption to approximately $7.0 million per person (indexed)

The 2024 estate and gift tax exemption is $13.61 million per person and can be used during life or upon death. Therefore, a married couple could exempt approximately ~ $27 million from estate or gift taxation. The excess assets or business/personal net worth over the exemption is subject to a 40% tax, which generally is due within nine months of the decedent’s death. However, effective January 1, 2026, these exemptions will return to their pre-tax amount or approximately $7 million (indexed for inflation). Therefore, more assets are exposed to the 40% taxation. High net worth individuals and business owners have less than two years to utilize the current year higher exemption.

Not surprisingly, nobody wants to die in order to save taxes, so how do high net worth individuals utilize this benefit before it expires?

One possible solution, before the current legislation expires, is to place some of your assets/ investments into an LLC with managing members (for control, you should be the managing member) and non-managing members (you initially) but this will be gifted into an irrevocable trust for benefit of (FBO) your spouse. Then, your spouse is lifetime beneficiary of this trust and the value of the non-managing member shares can be left to your spouse and then to any children at your spouse’s passing, estate tax free.

It is a complicated issue but one you should speak to your advisors  about if you have any concerns of your estate value exceeding the new lower limits taking effect in 2026. Please scan the QR code to read the complete article that details several strategies or log in onto our website below. There are many strategies but coordination with your tax, financial and legal team is important.

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