Increased Exemption Amounts Provide Window of Opportunity Before Sunset
As part of the Tax Cut and Jobs Act of 2017, the estate and gift tax exemption amount increased from $5M to $10M per taxpayer. This exemption amount is indexed for inflation each year. In November, the IRS announced the 2020 inflation adjusted estate and gift tax exemption amount. For 2020, the exemption amount increased from $11.4M to $11.58M per person, or $23.16 for married couples. This means that an individual may give up to $11.58M to non-spouse/ noncharity beneficiaries free of estate and gift tax. This limit combines both lifetime and testamentary gifts.
As part of the 2017 legislation, the increased exemption amount will last through the end of 2025. If Congress does not change or amend the tax laws before then, the exemption amount will revert to $5M (plus inflation adjustments) on January 1, 2026. This reversion to the lower exemption amount is often referred to as the sunset.
A variety of legislation has been proposed in both the House and Senate that, depending on the political climate, will greatly
impact estate planning. One bill introduced in the Senate completely repeals the estate tax. Another bill introduced in the
House reduces the exemption amount from $10M to $3.5M and increases the top rate to 77%.
It is also important to note that Florida law does not currently subject assets located in Florida to state estate tax. However,
if you own assets in a state that still maintains a state estate or inheritance tax, you should ensure that your estate plan
accommodates this possibility. Often, the exemption amounts for state estate tax are lower than the federal exemption amount.
Because of uncertainty under current law with the sunset and how the tax laws may change, making transfers now to take
advantage of the increased exemption amount are receiving increased attention.
As we approach the sunset, it is important to assess your estate plan and determine whether your estate will be subject to estate tax now or after the sunset. If your estate might be subject to estate tax, it is prudent to meet with your legal, tax, and financial advisors now to review strategies to reduce imposition of potential estate tax and take advance of the increased exemption amount through gifts. Various gift and estate planning strategies are available to help reduce your potential tax exposure and your team of advisors should be working to ensure that an appropriate strategy is deployed if needed.
While 2025 may seem to be far away, it is important to keep up to date with changes to the tax laws and how they will affect your estate plan in the meantime. Between now and the sunset, we will have had two Presidential elections, and every two years the composition of the Senate and House has the potential to shift.
About the Author
Christopher G. Price is a Wills, Trusts & Estate Planning lawyer at Henderson, Franklin, Starnes & Holt, P.A. He assists
clients by developing their estate plan, including drafting wills, revocable and irrevocable trusts, powers of attorney, living wills and health care surrogates, and advises clients on estate tax and gift tax minimization strategies. Chris’ estates practice includes estate planning, estate and trust administration, estate tax planning, and selective estate and trust litigation.
Christopher may be reached at 239-344-1183 or by email at firstname.lastname@example.org