Sharp Drop in Federal Estate Tax Exemption Still Slated for End of Year

There has been a great deal of speculation regarding the scheduled expiration of the increased federal estate and gift tax exemption. Introduced as part of the Tax Cuts and Jobs Act of 2017, the exemption was doubled for a period ending on December 31, 2025. While some people believe that Congress may extend the current exemption levels or even eliminate the estate tax altogether, no legislation has been passed to date. In the absence of Congressional action, individuals and families who have developed estate plans over the past eight years could face serious unintended consequences. 

Single people who die in 2025 can transfer up to $13.99 million to heirs without incurring estate taxes. With careful planning, this exemption can be effectively doubled for married couples to $27.98 million. Should the 2017 standard be allowed to sunset without extension or replacement, these figures would be approximately cut in half. This means someone’s estate that would fall within the current exemption could be subject to federal estate tax rates of up to 40 percent starting January 1, 2026.

Fortunately, there are ways in which you can reduce the size of your estate so that you can avoid taxation even if the exemption amount drops, such as:

• Develop a gifting strategy — You can take advantage of the current exemption amount to make tax-free gifts to family members or trusts. This can reduce the size of your taxable estate and you’ll retain the benefit even if the existing law sunsets.
• Establish trusts — Irrevocable life insurance trusts (ILITs), grantor retained annuity trusts (GRATs) and other legal instruments can help transfer wealth efficiently by shifting assets to beneficiaries independent of your estate.  
• Consider joint ownership and payable-on-death designations — When property is jointly owned by two people, the death of one owner means that the other automatically takes full control of the asset. Probate is not required to effectuate the transfer. Likewise, funds in an account that is payable-on-death to a named beneficiary are not subject to estate taxation. 

While the future of the estate tax remains uncertain, you can create or refine your asset protection strategy In order to prepare for whatever happens. As an experienced North Carolina estate planning firm, Donald R. Fuller, Jr., PLLC in Hickory will outline your options and take the steps necessary to give you peace of mind. Please call 828-639-8188 or contact me online to schedule an appointment.