Whether you plan to give financial gifts during your lifetime or leave your estate behind after you pass, the unified tax credit offers a way to reduce the tax burden. This lifetime credit merges gift and estate taxes, giving you flexibility in distributing your wealth.
The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the lifetime estate and gift tax exemption, the amount of otherwise taxable gifts shielded by the unified credit, from $5.6 million to $13.61 million for individuals or $27.22 million for married couples in 2024. Unless Congress intervenes, the exemption is scheduled to be reduced by half in 2026 (post-December 31, 2025) and adjusted for inflation. Estimates suggest a close to $7 million or less reduction or $14 million for married couples.
The unified tax credit is not utilized for gifts that fall under the annual gift tax exclusion, allowing for more tax-efficient planning. For 2024, the annual gift tax exclusion is $18,000 for individuals ($36,000 for married couples). Individuals can gift amounts up to the annual exclusion limit to as many individuals as they wish without affecting their lifetime gift and estate tax exemption.
As the increased unified tax credit nears its expiration date, high-net-worth individuals and families must revisit their estate plans. A smart strategy is to take advantage of the higher limits by making lifetime gifts that exceed the expected $7 million exemption before 2026. Once the exemption is lowered, any remaining amount over $7 million will no longer be accessible, and the amounts in excess of the post-2025 reduced amounts will be lost. Gifts made in excess of the estate and gift lifetime exemption in 2026 or later could be subject to up to a 40% gift tax.
Understanding the details of the estate and gift lifetime exemption can simplify your gift-giving strategy and make the process more efficient. However, since gift and estate planning can be intricate, it is wise to consult your Stephano Slack tax professional at 610-687-1600 or email us at [email protected].
Author Jessica Parson Gartensleben, Esq., LLM, specializes in helping high-net-worth individuals and families preserve their wealth by reducing their tax burdens. With her expertise in estate and trust planning, generational wealth transfers, and family business succession, she can guide you through every step of securing your financial legacy. Contact Jessica today at 610.235.4400 or [email protected] for personalized support tailored to your unique needs.
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