Newburg Staff Writers (4/23/21)

The federal estate and gift tax limits that are in place right now are some of the most favorable in recent memory, however these conditions probably will not last. As such, it is important to take advantage of these favorable conditions while they are still in place.

The Tax Cuts and Jobs Act (TCJA) has more than doubled the unified federal gift and estate tax exemption from $5.49 million in 2017 to the $11.7 million figure that the IRS recently announced for 2021. If you make enough gifts during your lifetime to use up your exemption, you will be taxed at a flat 40% rate on excess gifts. If your estate is valued in excess of the exemption upon your death, the excess will be taxed at the same flat 40% rate.

The current edition of the Internal Revenue Code calls for annual inflation adjustments to the lifetime gift tax exemption through 2025 and a sunset provision for 2026. This means in 2026 the lifetime exemption will revert to the 2017 amount plus an inflation adjustment, but the relatively high limits will not necessarily last until then.

The more immediate threat to the current favorable conditions is a possible change to tax law based on the outcome of the presidential election. It is possible that the 2020 exemption amount could be retroactively changed following the election; Congress could change the exemption to a new lower limit or implement the sunset early instead of waiting until 2026. As a point of reference for the severity of what changes could be coming, in 2009 the lifetime gift tax exemption was only $3.5 million with a maximum tax rate of 45%.

If you anticipate having a taxable estate, it would be prudent to take advantage of the favorable conditions now and transfer as much wealth as possible before tax law changes are enacted that could reduce the amount of wealth you can pass on to beneficiaries.

There are many planning opportunities available to assure that you maximize the transfer of wealth to your chosen beneficiaries and minimize the amount of estate taxes paid at death. At Newburg CPA we provide our clients with comprehensive estate planning to protect their assets for future generations and ensure their wishes are carried out in an organized and cost-effective fashion.