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Planning Before the Fall: Estate Planning Strategies To Consider Before December 31, 2025 (Or Sooner?)

This article features a few estate tax planning strategies to consider taking now or before December 31, 2025.

Current State of the Law 

The Tax Cuts and Jobs Act (TCJA) of 2017 doubled the 2018 basic exclusion amount from $5.6 million per person to $11.18 million per person. In 2023, an individual’s basic exclusion amount is $12.92 million and $25.84 million collectively for a married couple. This high basic exclusion amount means that many individuals will not need to pay an estate tax at death if they die in 2023.

However, on January 1, 2026, the basic exclusion amount is legislatively scheduled to be reduced to $5 million per person adjusted for inflation to an estimated $7 million per person or $14 million collectively for a married couple. This is almost $6 million less per person than today.

Now is the time for individuals with a net worth of $7 million or more and married couples with a net worth of $14 million or more to minimize their estate tax exposure.  

Are Estate Taxes Optional?

Each year, an individual may give up to $17,000 to each gift recipient. Additionally, an individual may make unlimited direct gifts to educational or medical institutions on behalf of the gift recipient.

An individual interested in making lifetime gifts may also take advantage of a charitable income tax deduction that depends upon several factors including the value and type of property given, the transfer mechanism for the property given, and the individual donor’s adjusted gross income in the year of the gift.

An individual may also make gifts at death to charitable entities, which may qualify for the unlimited charitable deduction that may reduce an individual’s estate tax liability to zero.

Estate Planning Strategies

Lifetime Gifts. One way to minimize potential estate taxes would be to increase what an individual gives away during their lifetime. A few popular gift strategies include outright gifts of cash ($17,000 per individual), gifts to 529 plans, and creating irrevocable gift trusts and irrevocable insurance trusts. 

Many individuals enjoy seeing their loved ones benefitting from their lifetime gift. Others regret giving away too much to their loved ones as they did not keep enough to live on. They also do not like how their loved ones spend “unearned” funds differently than the benefactor would.

Using your federal estate and gift tax exemption during your lifetime will decrease your future taxable estate by removing the gifted assets from your net worth. The major advantage of lifetime gifts is that after the date of the gift, any appreciation of the assets given will not be part of your taxable estate.

Charitable Gifts. Maximizing charitable contributions is a great way to reduce your taxable estate while obtaining income tax deductions and helping the community. Charitable giving can be simplified by creating a donor-advised fund (DAF) or by creating charitable trusts. Donor-advised funds allow an immediate tax deduction, and the funds invested in the DAF can grow tax-free while you decide which qualified public charities you would like to support through your account. A popular charitable trust is a charitable remainder trust (CRT), which is established when an owner transfers property to the trust and retains an annuity interest for a specific term. CRTs qualify for income and gift tax deductions and remove appreciated property from the owner’s taxable estate.

Spousal Lifetime Access Trust. A spousal lifetime access trust (SLAT) involves the creation of an irrevocable trust from Spouse No. 1 for the benefit of Spouse No. 2 during Spouse No. 2’s lifetime. During Spouse No. 2’s lifetime, the Trustee of the SLAT (often Spouse No. 2) may make distributions to Spouse No. 2 pursuant to the terms of the SLAT. This SLAT structure, with Spouse No. 2 as the Trustee and a beneficiary, allows the SLAT funds to be indirectly used by Spouse No. 1 (the donor-spouse). Before implementing a SLAT, you should reflect carefully on the stability of the spouses’ relationship, each spouse’s net worth after the creation of a SLAT, and the recipients at each spouse’s death.

Portability Election. Individuals may still file a federal estate tax return for their deceased spouse’s estate if the U.S. citizen spouse died within the last five years and the deceased spouse’s executor was not required to and did not file an estate tax return. The reason to go through the additional cost of filing an estate tax return when there is no requirement is to transfer the deceased spouse’s unused exemption (DSUE) to the surviving spouse. This type of federal estate tax return for a nontaxable deceased spouse’s estate is called a “portability election.”

Time Is of the Essence

Estate planning practitioners are gearing up for a busy 2024 and 2025. Beginning the estate tax planning process now ensures your legal and financial advisory teams have the time to create or revisit your estate plan and determine if one of the above strategies could apply to your estate plan.

The Effect of Portability Example

Calfee Connections blogs, vlogs, and other educational content are intended to inform and educate readers about legal developments and are not intended as legal advice for any specific individual or specific situation. Please consult with your attorney regarding any legal questions you may have. With regard to all content including case studies or descriptions, past outcomes do not predict future results. The opinions expressed may not necessarily reflect the viewpoints of all attorneys and professionals of Calfee, Halter & Griswold LLP or its subsidiary, Calfee Strategic Solutions, LLC.

Non-legal business services are provided by Calfee Strategic Solutions, LLC, a wholly owned subsidiary of Calfee, Halter & Griswold. Calfee Strategic Solutions is not a law firm and does not provide legal services to clients. Although many of the professionals in Calfee’s Government Relations and Legislation group and Investment Management group are attorneys, the non-licensed professionals in this group are not authorized to engage in the practice of law. Accordingly, our non-licensed professionals’ advice should not be regarded as legal advice, and their services should not be considered the practice of law.

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