For a number of years, estate taxes haven’t been a major planning issue for many people. Since 2012, the amount you can protect against the estate tax (known as “exemption”) has been rising and in the last six years alone, it’s gone up significantly. In 2024, the exemption is $13.61 million per person.
But, the estate tax laws are scheduled to sunset in the near future and could change even sooner due to the upcoming election.
This is the current state of the estate tax and planning to consider:
- Sunset of Current Estate Tax Laws. As I mentioned, the current exemption is $13.61 million per person ($27.2 million per couple). This is a far cry from the $1 million per person exemption in 2001. Unless Congress changes the laws earlier, the exemption will be increased one more time in 2025 and on January 1, 2026, it’ll drop in half to approximately $7 million. If this happens, many people will still be under reduced exemption. However, a number of people will not and they should consider planning for this change.
- Potential Early Changes to the Estate Tax Laws. When President Biden was elected in 2020, legislation was proposed to change the estate tax. It included a $3.5 million exemption (or about 1/4th the current exemption). That legislation can be passed with two Senate votes. Also, President Biden recently confirmed a proposal to reduce the estate tax exemption $3.5 million per person. If this year’s election results in President Biden being re-elected and a Democratic-controlled Congress, it’s very likely a $3.5 million exemption will be enacted. This will have an effect on a greater number of people, their families, and businesses.
- Planning to Consider. If you’re married, your assets are above $7 million, and you have a large percentage of your personal net worth in assets other than IRAs, you could create one or more spousal limited access trusts (“SLATs”). A SLAT will allow you to lock-in the tax benefit of the historically high estate tax exemption. If the exemption declines, the assets you’ve gifted tax-free to the SLAT are protected from the estate tax at your passing. Also, this trust would be structured so it benefits your spouse. That way, your spouse is able to access as well as control the trust and you won’t face the uncertainty of whether you’ll have enough assets to live on for the rest of your life.
If you have any questions about the estate tax or are interested in planning to avoid it, feel free to contact me at phmulder@cunninghamdalman.com.
