How to prepare for future estate tax changes

On Behalf of | Feb 6, 2024 | Estate Planning

High-net-worth families in Michigan have a short window to take advantage of the higher estate and gift tax exemptions offered by the Tax Cuts and Job Act (TCJA). If these are allowed to sunset on Jan. 1, 2026, estate gift and generation-skipping transfer tax exemptions could be cut in half.

Where we stand now

In 2017, the TCJA effectively doubled the estate and gift tax exemption, increasing it from $5.6 million per person and $11.18 million per married couple to $11.18 million per individual and $22.36 million per married couple. This adjustment for inflation annually raised the exemption to $12.92 million per person and $25.84 million per married couple in 2023.

Effective estate planning strategies

Individuals with high wealth may want to consider utilizing a portion or the entirety of their existing exemption amount before Jan.1, 2026. Using the amount now ensures that it cannot be taken away later. Exploring estate planning strategies, such as the spousal lifetime access trust (SLAT), is essential. In this strategy, a person can establish an irrevocable trust for their spouse and transfer assets to the trust using their exemption amount. This trust offers flexibility, allowing the receiving spouse to be a beneficiary of the trust’s income.

An irrevocable trust for descendants and children can benefit younger generations in the family, allowing a person to take advantage of their GST tax exemption if they wish. Transferring or gifting assets enables an individual to take advantage of an exemption amount they might lose after the end of 2025.

Review your estate plan

Even if a high net-worth individual or family feels that the TCJA sunset will not impact their estate planning strategy, it is still essential for them to review their estate plan from time to time. A good estate plan is flexible and considers changes in the life of the individual preparing the plan and the recipients’ circumstances. Proper planning makes it possible to devise an estate plan that effectively represents your goals and ideals while caring for those you leave behind.