3 Ways To Prepare Now So You Don’t Lose Money With Upcoming Gift and Estate Tax Changes

pixdeluxe / iStock/Getty Images

pixdeluxe / iStock/Getty Images

Every American must take important tax aspects into consideration every year, whether they’re wealthy or not. For high-net-worth individuals, the estate and gift tax exemptions need to be navigated carefully, especially now that these limitations are due to sunset at the end of 2025.

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The IRS has already reported that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024, or $25.84 million per married couple. The annual gift exclusion amount is also increasing, from $17,000 per person in 2023 to $18,000 per person in 2024. However, barring an extension or new legislation, the lifetime estate and gift tax exemption is due to be cut by approximately half (to around $7 million, by most accounts), adjusted for inflation, at midnight on Dec. 31, 2025.

Although you have two years until the current estate and gift tax exemptions expire, it’s important to address your gift-giving plans now, so that you and your recipients can take advantage of any legacy money while all parties are still living — and the tax exclusion amounts that come with them. Expiring regulations are the biggest thing being addressed by financial planners to their clients now.

“Anyone with projected estate tax liabilities has a two-year window that could close pretty quickly,” said Austin Jarvis of the Schwab Center for Financial Research. “Some people could go to bed on December 31, 2025, not having thought about the value of their estate and wake up in 2026 and with millions of potential tax liability.”

Fortunately, there are some common gift and estate tax strategies you can consider depending on your financial situation. Here are three:

Send Lifetime Gifts Now

Like most everything, it’s better to plan ahead than wait and rush decisions. One way for high-earning couples to do so is to remove assets from their estate via gifts, according to CNBC. Gifting assets is a simple yet effective way of improving others’ lives and lowering your tax liability.

For married couples who will be affected by the lower exemption in 2026, the best strategy is to use up one spouse’s higher exclusion before the provision expires, according to Robert Dietz, national director of tax research at Bernstein Private Wealth Management. “The reality is you have to give away more than half to see any benefit from the gift in terms of the exclusion going away,” he said.

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Dual Spousal Trusts

Married couples may want to consider a spousal lifetime access trust (SLAT), a “type of irrevocable trust that can exclude assets from your estate while granting the beneficiary spouse limited access to them,” per Charles Schwab.

With one (non-donor) spouse enjoying continued access to gifted assets through distributions, a couple can keep financial control and take comfort in a tax rule that lets them use a bigger exemption than would otherwise be acceptable. A SLAT is a funded gift performed while both spouses are still alive.

Family Businesses

For many high-net-worth individuals, family businesses are automatically part of an estate and require special planning. Luckily, it is possible to give away a large chunk of its ownership while maintaining an equally large amount of control.

Two extremely useful vehicles for helping reduce inheritance taxes are forming a family limited partnership (FLP) or a family limited liability company (FLLC). An FLP is simply a partnership created by two or more family members, serving as limited partners, in accordance with state law. An FLLC protects all decision-makers from liability, whether they are family, designated partners or groups.

Whatever your income and tax situation, it’s best to err on the side of caution and get everything settled before the end of 2025. While it may seem a long ways away, it’ll sneak up on you quicker than you think.

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This article originally appeared on GOBankingRates.com: Taxes 2024: 3 Ways To Prepare Now So You Don’t Lose Money With Upcoming Gift and Estate Tax Changes

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