A guide to federal tax exemption changes
If you’re sitting on a large estate, listen up.
A temporary provision of the Tax Cuts and Jobs Act, substantially lowering the tax cost of transferring wealth, will sunset in seven years. And those who take advantage of it before it ends will avoid a hefty bill from Uncle Sam come 2026.
In other words, the time to gift is now, before the gift and estate tax exemption — also known as the basic exclusion amount — is sliced in half.
Gifting, which involves the transferring of cash, units of real estate and/or businesses to the next generation, reduces the value of the taxable estate upon death. Amounts on gifts and estates over the exemption levels are taxed at 40 percent.
Under the current provision, over a lifetime, untaxed gifts can total up to $11.4 million for an individual and $22.8 million for a married couple, with both dollar amounts adjusted for inflation. That’s in addition to the annual gift exemption of $15,000, which is the amount that can be given away by one person to any number of people per year, tax-free, without those gifts counting against the lifetime exemption. Notably, the annual gift exemption of $15,000 will not be reduced with the lifetime exemption.
Furthermore, under today’s tax law, the present and future appreciation, or an increase in the value of assets over time, escapes estate tax.
But that all ends on January 1, 2026, when the lifetime exemptions revert back to the pre-2018 levels of $5.7 million for an individual and $11.4 million for a married couple. Also, appreciation will once again be taxed.
After the tax overhaul was signed into law, there was great concern that gifts given during this window would be taxed when the exemptions fell, but the Treasury and Internal Revenue Service have rolled out regulation allowing for those who make large gifts between now and 2026 to do so without the fear of a clawback.
So, there’s no better time than the present to share your wealth. Those with estates valued at $10 million or more should contact an F&M Trust Investment & Trust Services professional today to discuss planning opportunities.
Susan Rosenberg is the Chief Investment & Trust Services Officer at F&M Trust.
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