Frost Law
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!
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.1 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:
Married couples have a particularly compelling opportunity to use a Spousal Lifetime Access Trust (“SLAT”).2 A SLAT is special because it is specifically designed to allow gifting to a spouse through the creation of a trust for their benefit while allowing the gifting spouse to retain access to the trust assets indirectly. 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.
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!
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.1 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:
Married couples have a particularly compelling opportunity to use a Spousal Lifetime Access Trust (“SLAT”).2 A SLAT is special because it is specifically designed to allow gifting to a spouse through the creation of a trust for their benefit while allowing the gifting spouse to retain access to the trust assets indirectly. 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.
