Don’t wait to release high estate and gift taxes

Don’t let the unknown tax future catch you unprepared. This is what I have for Americans ahead of the tax changes that are set to affect millions of us.

After implementation in 2017 Tax Cuts and Jobs Act (TCJA) was the most sweeping change to the US tax code in decades. And if some of its provisions expire in 2025, as planned, it will affect virtually every American if they don’t act now.

The 2024 presidential election is just days away, and with it will likely come many tax changes that will affect millions of Americans. If you haven’t reviewed yours financial plan recently, and especially those who have an plan of the estateI cannot stress enough the urgency of using these historically high exemptions now, today. Not after the election. Now. This is a very unique opportunity to maximize the legacy you will leave to your loved ones.

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Tax planning it’s a long, complicated process, and waiting isn’t a smart option. Whoever your advisor is, get in touch with them today and get ahead of the curve to help you navigate the significant complexities involved.

There will always be uncertainty about the future of taxes. However, in this case, you have the opportunity to act now and reap long-term benefits.

Let’s simplify what’s at stake for Americans

Generally, the federal government imposes a transfer tax of up to 40% on the transfer of certain wealth real estate tax applicable after death or a gift tax for lifetime transfers. If you make these transfers to grandchildren or subsequent descendants, an additional generation-skipping transfer tax may apply – potentially up to 40%. Depending on where you live, there may also be estate or inheritance taxes at the state level. However, under the TCJA, individuals are currently allowed to transfer significant amounts of assets from their estates without having to pay any federal transfer taxes.

The TCJA provides a lifetime estate and gift tax exemption of $13.61 million for individuals in 2024 ($13.99 million in 2025), meaning you can give up to that amount in excess of any which gift will be taxed up to 40%.

This exception is historically high, but also potentially time-limited. The increased exemption is scheduled to end after 2025 and drop to $7 million on January 1, 2026.

The only way to take full advantage of the increased exemption is to make significant lifetime gifts before the termination date.

Notably, these gifts cannot be retroactively taxed unless the TCJA is renewed.

Maximizing the benefits of this opportunity often requires an “all of the above” approach that includes trust planning, lifetime gifts, and use life insurance. Having a comprehensive, flexible, holistic plan that includes life insurance can help maximize the amount of assets your heirs will receive.

In other words, the best way to take advantage of an opportunity is to work with a financial specialist who can see the full picture of your financial and tax situation. Your advisor can then assemble the right team and develop a plan that ensures you can benefit from your layoff now and save wealth for future generations.

Consider taking action now

Don’t put it off any longer. The clock is ticking. With all that goes into planning an estate of this magnitude, time to act will run out sooner than you think. The execution period for some individuals can be from six months to more than one year.

It’s not a quick process to determine how much of your wealth you can transfer, to whom, or in what form (eg, should your children receive cash or a portion of the family business? How much? Should they receive it directly or in a trust?). And even after making important decisions, it is not always quick to conduct an analysis and draw up documents by lawyers, accountants and other consultants.

You also need to consider the unprecedented demand and competition for skilled professionals—attorneys, accountants, etc.—and how that will affect your time frame for putting your plan into action and executing it.

The future of the tax code will always be in flux. Trying to predict these changes can be difficult, if not impossible. Instead, investors business owners and the people of inherited wealth flexibility should be prioritized to create protection against future uncertainty.

If the higher exemptions are extended, you will already lock in benefits in advance. Contact a qualified financial planner now to help you through the process and create a long-term plan that fits your needs.

This article was written and represents the views of our consultant and not the editorial staff of Kiplinger. You can check advisor records using SEC or with FINRA.