Navigating the Changes: Federal Estate and Gift Tax Exclusion for 2024-2025

Federal Estate and Gift Tax Exclusion for 2024-2025 Shannon & Associates CPAs

In the realm of estate planning, we want to bring to your attention an important change that is coming, one that demands attention and strategic action. The Federal estate and gift tax exclusion amounts are undergoing a change, creating a distinctive window of opportunity for planning between 2024 and 2025.

What is the estate and gift tax exemption?

At the heart of this impending change lies the federal lifetime gift and estate tax exemption. This critical exemption defines the amount individuals can protect from estate and gift taxes throughout their lifetime and at the time of their passing.

What are the current and expected exemption amounts?

  • For 2024, the exclusion is $13.61 million per person.  This will be increased for inflation for 2025.
  • On 12/31/25 the tax law that raised the exemption several years ago will expire. 
  • Starting 1/1/2026 the exemption will be $5 million adjusted for inflation and is expected to be around $7 million.

Why does this change matter?

The federal estate tax rate is 40%.  If your estate is valued over the exclusion amount at your death, your beneficiaries will pay estate tax at 40% on the value over the exclusion.  Estate tax planning will mitigate your exposure to this high tax rate and preserve more of your assets for your beneficiaries.

What can I do?

Consider the value of your future estate and assets you are willing to gift now to avoid estate tax in the future. 

Remember that the value of your assets is likely to increase over time, so the value of your assets now could be considerably less than the value at your death. 

For example, if you now have $20 million in assets, by gifting $10 million before 12/31/25 you will avoid estate tax on the $3 million that is over the $7 million exemption, which is a tax savings of $1.2 million. 

Also, the appreciation on those gifted assets between the date of the gift and the date of your death is also outside of your future estate and not subject to estate tax.

When should you take action?

We encourage you to take action now!

A plan to utilize gifting to use the large estate tax exemption before 12/31/25 is a process that takes time. 

You should consult your attorney.  The mechanics involved in transferring assets and completing the gift also take time.  We anticipate that many attorneys will see their time fill up quickly with clients working toward these goals and they may not have time to assist later in 2024 or in 2025.

Please note – there are also Washington State Transfer and Estate Taxes, and those should also be discussed.

Need help?

Other considerations should be made when considering gifting large amounts. Please consult Shannon & Associates for a planning meeting if you are interested in taking advantage of this unique opportunity for using gifting to save future estate tax. Contact us today!

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