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Impending Estate Tax Exemption Changes Have Some Families Scrambling

In recent years, many high-net-worth families with large estates benefited significantly from the increase in the federal estate tax exemption limits brought on as part of the Tax Cuts and Jobs Act of 2017. The new limits at the time of roughly $11 million or $22 million per couple have had a profound impact on estate planning strategies. 

Yet, the legislation includes a sunset provision set to take effect on January 1, 2026, that returns the exemption limits to prior levels, adjusted for inflation. This potential reversion has put individuals and couples on high alert for ways to protect their assets for their heirs and beneficiaries.

Current Limits and Adjustments

For 2024, the federal estate and gift tax exemption amount has been set at $13.61 million per individual, up from $12.92 million in 2023, with married couples having the ability to shield a combined $27.22 million from federal estate taxes. This adjustment, a reflection of the Internal Revenue Service's (IRS) annual inflation adjustments, highlights the annual trend of rising exemption amounts. 

However, these higher amounts are set against the backdrop of a looming deadline, where, absent congressional action, these exemption amounts revert to pre-2017 levels, adjusted for inflation, estimated to be in the range of $6-7 million per individual.

The Sunset Provision and Congressional Outlook

The sunset provision embedded in the Tax Cuts and Jobs Act signifies that without legislative intervention, the exemption amounts will undergo a substantial reduction starting January 1, 2026. Despite proposals and discussions within Congress about possibly extending the current exemption limits, including some Republican-led initiatives aiming for a full repeal of the estate tax, the political landscape suggests such measures face significant hurdles to passage.

Strategies for Wealth Preservation

In anticipation of the sunset provision, there are several strategies individuals can employ to optimize their estate planning, including:

  • Lifetime Gifting: Leveraging the annual gift tax exclusion, which has risen to $18,000 per recipient in 2024, allows individuals to reduce their taxable estate by making tax-free gifts within these limits each year.
  • This limit may be exceeded without triggering a tax liability if the donor elects to have the extra amount lower their lifetime exclusion. 
  • Irrevocable Trusts: These can be used to permanently remove assets from an estate, thereby reducing the taxable estate value. Note that once the assets are removed from the estate, the grantor gives up control of the assets to the beneficiary. 
  • Life Insurance Trusts: By placing life insurance policies within an irrevocable life insurance trust (ILIT), the death benefits can be excluded from the taxable estate, providing liquidity for estate taxes or other needs. A third party manages the distribution of the death benefits per the terms of life insurance agreement per the wishes of the grantor. 
  • Private Placement Variable Annuities (PPVA): This investment vehicle can be used to defer capital gains taxes while allowing investors to invest in illiquid alternative investments e.g., real estate, commodities, hedge funds, private equity that have the potential to provide superior returns.

Conclusion and Next Steps

As the 2025 year-end deadline approaches, the importance of proactive estate planning cannot be overstated. High-net-worth individuals and couples should consider taking advantage of the currently elevated exemption limits through strategies such as lifetime gifting and the establishment of trusts tailored to their specific needs. Moreover, the potential for legislative changes underscores the need for ongoing vigilance and flexibility in estate planning.

Given the complexities and the changing landscape of estate tax laws, working closely with knowledgeable tax advisors and estate planning professionals is essential. These experts can provide guidance tailored to your individual circumstances and help you navigate the challenges and opportunities presented by the current tax environment. 

For those looking to discuss their estate planning investment strategies further, scheduling a consultation with your financial professional can also be beneficial. Our team of professionals at FGG1031 | First Guardian Group is available to meet with you and help ensure your investments are aligned with your wealth preservation goals and estate planning objectives.

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Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $3 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student, and senior housing. Paul’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, workouts, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals. Prior to founding First Guardian Group/FGG1031, Paul was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 35 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M. Paul holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered financial representative with LightPath Capital Inc, member FINRA /SIPC. Paul is a noted speaker, author, and actively lectures on investments, sales, and management related topics. He is author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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