Feature
2025 TCJA Expiration: Estate Planning Considerations
Issue 1
March 10, 2025
By Avery Blank, CPA
In 2017, the Tax Cuts and Jobs Act was signed. This doubled the base amount used to calculate the gift and estate tax exemption. The exclusion available is now equal to a gross value of $13,990,000. Like other pieces of the TCJA, this exclusion is due to sunset at the end of 2025, when that base amount will halve. As a result, that exclusion will drop to approximately $7.2 million. The potential tax savings on gift and estate tax alone would decrease about $2.7 million as a result.
High Net Worth Individuals should be concerned about this increased tax exposure and related planning. To this end, an advisor should make their clients aware that they can realize these savings by gifting parts of their current includable estate prior to the scheduled sunset. To effectuate this, one should ask three primary questions: How much, when and how?
How much
At first glance, the answer to “How much of my includable estate should I gift?” would appear to be “as much as possible up to $13,990,000.” This may be readily apparent for Ultra High Net Worth individuals. However, not everyone is in the position to transfer nearly $14 million. Consideration should be given to (i) the current and planned income of the person, (ii) the current and planned expenses of the person, (iii) the age/risk of the person relative to this, and (iv) the beneficiary of the gift. An advisor has the opportunity to explore wealth planning and model estate planning with their clients by showing them tax-efficient strategies for moving, growing, and using their wealth.
Let’s use three people as examples of the above.
- A 30-year-old tech multi-millionaire with a net-worth of $50 million who has no kids and plans to leave the entirety of their estate to charity likely does not need to act. While there is opportunity for efficient planning, the exemption does not stand to be utilized in this situation.
- A 60-year-old couple who has a $50 million portfolio of investments and lives a conservative lifestyle with plans to leave their estate to their kids and grandkids is much more likely to want to gift up to their gift and GST exemption limits. This would save their beneficiaries up to $5.5 million combined.
- Lastly, consider the same 60-year-old couple having a $30 million portfolio instead. The same wisdom could make them gift nearly $28 million, but this would leave them with insufficient amounts to fund their lifestyle. Nonetheless, a gift between $14.5 and $28 million total could still be beneficial and allow them to realize some of the exemption before it disappears.
When
After considering the amount a Taxpayer can gift, it is important to consider when to gift it. While the deadline to realize the increased exclusion is December 31, 2025, there are incentives to gifting now such as peace of mind and the ability to push gains out of the includable estate before they grow through the year. Nonetheless, if there is at least some interest in keeping amounts within the includable estate, then a Taxpayer should wait to see if the current Congress and administration extend the sunset on an increased base exemption.
How
Gifting is accomplished through various means. This is a highly fact-dependent process that should be supported by competent lawyers and CPAs. An advisor should consider the form of a trust, such as whether it should be a grantor trust, a SLAT, CRT, CLT, IDGT, etc., as well as other items enumerated below.
- Split Gift Election: Allows both spouse’s exclusions to be used regardless of the flow of funds used for the gift.
- Deceased Spousal Unused Exclusion (“DSUE”): Created on the death of a spouse with an unused gift and estate tax exemption. The remaining exemption carries to the surviving spouse. A DSUE is consumed before a spouse’s own exclusion is used; however, a DSUE will not adjust downward should the statutory basic exclusion be reduced.
- State Gift and Estate Taxes: Certain states have gift or estate taxes. Gifting early may expose an individual to these gift taxes or otherwise save them from a later estate tax liability.
- Repeated Gifting: Using the annual exclusion every year to slowly move pieces of an estate to various beneficiaries will have a compounding effect which can be powerful by itself.
- The Power of Substitution: Appreciable assets contributed to a trust, with a power of substitution, and excludable from an estate, can shield the growth of such assets from the includable estate, but also preserve the step-up in basis available.
- Generation Skipping Transfers: The GST exemption is tied to the base exclusion, so the decrease to gift and estate tax could make certain clients consider premature gifts to grandchildren or other skip persons.
Conclusion
Advisors should reach out to their High-Net-Worth individuals and encourage them to create gifting plans that would utilize any remaining gift and GST exemptions available to them before the end of the year. Combined with certain considerations enumerated above, savings of millions of dollars will be lost at year end. To learn more about what the TCJA Sunset and other estate planning topics mean for you and your clients, please register on the KyCPA website to attend the Estate Planning Conference on Friday, June 6, available in-person and virtually, and held jointly by the Kentucky Society of CPAs and Louisville Bar Association.
About the author: Avery Blank, CPA, EA, serves on the Society’s Estate Planning Committee.
