In 2017, the gift and estate tax exemptions increased sharply based on a law passed in Congress. This meant that many estates that previously would have been subject to taxation no longer were. Since then, Americans have drafted wills, established trusts and implemented gift-giving strategies based on the higher exemption amounts. However, the law that raised the exemption is set to expire at the end of 2025, so it is time to review estate plans and gifting strategies in case the exemption level reverts to the old standard.
Currently, the estate tax exemption stands at a historic high of $13.61 million per person ($27.22 million for married couples), but it is scheduled to drop to around $7 million per person (adjusted for inflation) in 2026 unless Congress acts. This reduction means more estates will be subject to federal estate taxes, highlighting the importance of proactive estate planning, including strategic gifting.
For those with sizable estates, gifting is a powerful tool to reduce the taxable value of an estate while transferring wealth to future generations. By gifting assets during one’s lifetime, individuals can reduce the value of their estate, potentially bringing it below the exemption threshold and avoiding estate tax. Moreover, the lifetime gift exemption parallels the estate tax exemption, so now is the time to take advantage of the higher amount when an individual can transfer up to $13.61 million over their life tax-free.
Every individual can give up to $18,000 per recipient per year without it counting toward the lifetime estate and gift tax exemption. Married couples can jointly gift up to $36,000 per recipient per year. Annual exclusion gifts are an effective way to transfer wealth incrementally, reducing the taxable estate without using any of the lifetime exemption amount.
Contributing to a 529 college savings plan on behalf of children or grandchildren is another gifting option. Individuals can make a one-time, five-year front-loaded contribution, effectively gifting up to $90,000 per beneficiary ($180,000 for married couples) in a single year without it counting against their annual or lifetime exemption.
Certain irrevocable trusts, like the Grantor Retained Annuity Trust (GRAT) or the Irrevocable Life Insurance Trust (ILIT), can be used to transfer assets out of the estate while still retaining some control over them. Trusts can provide a mechanism for larger, tax-efficient gifts and offer more control over how and when beneficiaries receive the assets.
Given the anticipated decrease in the estate tax exemption, it is crucial for high-net-worth individuals to act now by reviewing their wills, trusts and other estate planning instruments with a qualified attorney.
Frieri Law Group helps New Jersey clients develop gift strategies tailored to their situation and needs as part of a comprehensive estate plan. From our office in Cranford we assist residents of Union, Morris and Somerset counties, as well as other area communities. Please call 908-883-3390 or contact us online for a consultation.