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What You Need to Know About Estate Tax Changes

What You Need to Know About Estate Tax Changes

April 02, 2024

The saying goes that there are two things certain in life: death and taxes. However, for us in the tax-focused financial planning industry, we also know there is another constant: tax laws will inevitably change. 

One such area of tax law set to change at the end of 2025 affects estate taxes and the expiration of certain tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA). Unless legislative action is taken, these changes will undoubtedly impact many individuals, families, and business owners, especially those with estates to pass on to loved ones. As your neighborhood resources for money matters, we wanted to provide some clarity and guidance amidst the evolving situation.

Here is a summary of some of the expected changes and how tax-intelligent financial strategies and guidance from an advisor can help you get ahead of the changes. 

  • Estate and Gift Tax Exemption Sunset: One of the most notable adjustments is the anticipated decrease in the estate tax exemption. Currently set at $13.61 million per individual, this threshold is expected to revert to its pre-2018 level, potentially dropping to around $6 million per person1. This reduction means that more estates could be subject to estate taxes come 2026, to the tune of millions of dollars for some families.
  • Increased Tax Rates: Alongside the reduction in the exemption threshold, we may also see an increase in estate tax rates. The current maximum estate tax rate of 40% could be raised, imposing a higher tax burden on taxable estates and impacting wealth transfer strategies.
  • Expiration of Tax Provisions for Businesses: One key tax provision for business owners set to expire is the ability to fully expense short-lived capital investments, such as equipment and machinery, as a deduction. This provision expires in December 2026 and can impact business owners from a tax standpoint. 

Steps You Should Take

Luckily, there are ways to plan for these upcoming changes and opportunities to be strategic.

  • Planning Opportunities: Despite these impending changes, opportunities are still available to minimize estate tax liabilities. Utilizing trusts, gifting strategies, and life insurance can help maximize wealth transfer and tax efficiency. We can help identify solutions that will work best for your situation.
  • Reviewing Existing Plans: Given the uncertainty surrounding future tax policies, it’s smart to schedule a time to review your estate plans. What previously worked over the past handful of years may no longer be suitable under the potential new regulations. A thorough review will make sure that your plans align with current laws and your financial objectives.

Staying informed and proactive is paramount in preparing for the upcoming changes to estate tax laws. By understanding the potential impacts, exploring planning opportunities, and regularly reassessing estate plans, individuals can effectively manage their wealth and legacy for future generations. Feel free to contact us to set up a time to review your plans.

1. Kiplinger, 2023