Under current law, an individual can transfer $13.61 million of wealth during their lifetime or at death without incurring federal estate tax. This amount is referred to as the “Federal Estate Tax Exemption.” When an individual transfers more than this amount, the transfer is subject to a tax rate of up to 40 percent. Our currently high exemption is slated to expire on January 1, 2026, however, at which time it will revert to the pre- Tax Cut and Jobs Act exemption amount of $5 million per person, indexed for inflation from 2010. With inflation, the exemption amount will likely be around $ 7 million. In other words, the sun is about to set on our high exemptions!

Have Questions? Call us for Your consultation.

Now is the time for individuals with wealth in excess of the 2026 exemption amount to consider implementing a gifting strategy to minimize or avoid federal estate tax altogether. Assets that are effectively gifted before the exemption sunsets will be removed from their taxable estate. Further, even if the exemption amount is lower at the individual’s death, the previously gifted assets will not be taxed. This strategy essentially saves up to 40 percent of the value of the gifted assets from being taxed later. Additionally, if the value of the gifted asset grows between now and the time of death, the growth will not be subject to estate tax either!

For individuals considering making a sunset planning gift, various strategies might be a good fit depending on the specific circumstances. Strategies worth considering may include:

  • an outright gift;
  • a gift into a protected legacy trust;
  • intentionally defective grantor trusts; and
  • retained interest trusts, such as a grantor retained annuity trust (“GRAT”), charitable remainder annuity trust (“CRAT”), charitable remainder unitrust (“CRUT”), or qualified personal residence trust (“QPRT”).

Married couples have a particularly compelling opportunity to use a Spousal Lifetime Access Trust (“SLAT”).1 A SLAT is special because it is specifically designed to allow gifting to a spouse through the creation of a trust for their benefit, thus allowing continued access to the gifted assets within the marriage.Within a married couple, each spouse can create a SLAT for the other, meaning that the spouses still have access to the funds, but the funds remain outside both spouse's estates for tax purposes. When a couple is setting up a SLAT, there are several specifications that must be followed to ensure that the gifts are properly made and the exemptions are utilized. One requirement is that enough time pass must between when the first and second spouse sets up the trusts. Couples interested in implementing a SLAT technique should begin acting now before it is too late.

If you have any questions or concerns about estate tax planning then please reach out to our team at (410) 497-5947 or schedule a confidential consultation.

Footnotes

  1. Example: Individuals B and C are married and have a net worth of $24 million. In 2024, Individual B creates a SLAT for Individual C’s benefit containing $9 million of assets and using $9 million of Individual B’s exemption. In 2025, Individual C creates a SLAT for Individual B’s benefit and the benefit of Individuals B & C’s children. The SLAT for Individual B contains $8 million of asset and uses $8 million of Individual B’s exemption. Individuals B and C have transferred $17 million out of their estates—tax free—and retain $7 million to use during the remainder of their lifetime. They continue to have access to the assets in the SLATs. Had Individuals B and C died in 2026 without making these gifts, they would be looking at an estate tax of up $4 million!
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Planning for the 2025 Federal Estate Tax Sunset

Published on
June 25, 2024
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Under current law, an individual can transfer $13.61 million of wealth during their lifetime or at death without incurring federal estate tax. This amount is referred to as the “Federal Estate Tax Exemption.” When an individual transfers more than this amount, the transfer is subject to a tax rate of up to 40 percent. Our currently high exemption is slated to expire on January 1, 2026, however, at which time it will revert to the pre- Tax Cut and Jobs Act exemption amount of $5 million per person, indexed for inflation from 2010. With inflation, the exemption amount will likely be around $ 7 million. In other words, the sun is about to set on our high exemptions!

Have Questions? Call Our Team Today.

Now is the time for individuals with wealth in excess of the 2026 exemption amount to consider implementing a gifting strategy to minimize or avoid federal estate tax altogether. Assets that are effectively gifted before the exemption sunsets will be removed from their taxable estate. Further, even if the exemption amount is lower at the individual’s death, the previously gifted assets will not be taxed. This strategy essentially saves up to 40 percent of the value of the gifted assets from being taxed later. Additionally, if the value of the gifted asset grows between now and the time of death, the growth will not be subject to estate tax either!

For individuals considering making a sunset planning gift, various strategies might be a good fit depending on the specific circumstances. Strategies worth considering may include:

  • an outright gift;
  • a gift into a protected legacy trust;
  • intentionally defective grantor trusts; and
  • retained interest trusts, such as a grantor retained annuity trust (“GRAT”), charitable remainder annuity trust (“CRAT”), charitable remainder unitrust (“CRUT”), or qualified personal residence trust (“QPRT”).

Married couples have a particularly compelling opportunity to use a Spousal Lifetime Access Trust (“SLAT”).1 A SLAT is special because it is specifically designed to allow gifting to a spouse through the creation of a trust for their benefit, thus allowing continued access to the gifted assets within the marriage.Within a married couple, each spouse can create a SLAT for the other, meaning that the spouses still have access to the funds, but the funds remain outside both spouse's estates for tax purposes. When a couple is setting up a SLAT, there are several specifications that must be followed to ensure that the gifts are properly made and the exemptions are utilized. One requirement is that enough time pass must between when the first and second spouse sets up the trusts. Couples interested in implementing a SLAT technique should begin acting now before it is too late.

If you have any questions or concerns about estate tax planning then please reach out to our team at (410) 497-5947 or schedule a confidential consultation.

Footnotes

  1. Example: Individuals B and C are married and have a net worth of $24 million. In 2024, Individual B creates a SLAT for Individual C’s benefit containing $9 million of assets and using $9 million of Individual B’s exemption. In 2025, Individual C creates a SLAT for Individual B’s benefit and the benefit of Individuals B & C’s children. The SLAT for Individual B contains $8 million of asset and uses $8 million of Individual B’s exemption. Individuals B and C have transferred $17 million out of their estates—tax free—and retain $7 million to use during the remainder of their lifetime. They continue to have access to the assets in the SLATs. Had Individuals B and C died in 2026 without making these gifts, they would be looking at an estate tax of up $4 million!