The TCJA and Estate Taxes- Start Preparing Now

The TCJA and Estate Taxes could be up in the air depending on the presidential election outcome. With the 2024 election looming, uncertainty hangs over the fate of the Tax Cuts and Jobs Act (TCJA) of 2017. This landmark legislation included a significant increase in the estate tax exemption, allowing individuals to transfer much larger sums to heirs without incurring federal estate tax. However, some key provisions of the TCJA, including the high estate tax exemption, are set to expire at the end of 2025. This “sunset” provision has estate planning attorneys and financial advisors urging action, as inaction from Congress could lead to a significant tax burden for many families.

The TCJA and Estate Taxes: A Refresher

The TCJA brought about sweeping changes to the U.S. tax code, impacting individuals, businesses, and estates. One of the most notable changes for estate planning was the dramatic increase in the estate tax exemption. In 2024, the exemption sits at a historically high $13.6 million, meaning estates valued below this threshold are generally exempt from federal estate tax. This exemption allows families to pass on a larger inheritance without facing a hefty tax bill.

The Looming Sunset: What Happens in 2026?

The concern lies in the TCJA’s sunset provisions. If Congress doesn’t act before the end of 2025, the estate tax exemption is slated to revert back to pre-TCJA levels, approximately $5.49 million per person (indexed for inflation). This dramatic decrease would bring a much larger number of estates under the federal estate tax umbrella, potentially leading to significant tax liabilities for many families.

Planning for Uncertainty: Why Now is the Time to Act

Given the political climate and the upcoming election, it’s likely that Congress won’t address the TCJA sunset provisions in 2024. This means proactive estate planning is crucial to minimize potential tax burdens. Here’s why you should consider planning now:

• Utilize the Current High Exemption: With the current high exemption, you have a valuable opportunity to transfer assets out of your estate and potentially reduce your future tax liability. Strategies like lifetime gifting can be particularly beneficial in this scenario.
• The IRS Protects Pre-Sunset Gifts: The IRS has clarified that gifts made before the potential sunset will be grandfathered in, meaning they won’t be subject to the lower exemption amount. This provides a window of opportunity for strategic gifting.
• Seek Professional Guidance: Navigating complex tax laws and estate planning strategies is best done with the help of qualified professionals like financial advisors, accountants, and estate planning attorneys. They can assess your individual situation, recommend personalized strategies, and keep you updated on any legislative developments that might impact your estate.

Secure Your Legacy Now

The potential sunset of the TCJA’s estate tax exemption presents a significant challenge for estate planning. However, by taking proactive steps now, you can potentially minimize the tax burden on your heirs and ensure a smoother transfer of your wealth. While this blog post provides a general overview, consulting with a qualified financial advisor and estate planning attorney is crucial to develop a plan tailored to your specific circumstances and goals. Remember, taking action now can safeguard your legacy and provide peace of mind for your loved ones.

If you need help navigating the pending changes, or want to navigate your estate plan, contact us.