Making the Most of Your Federal Estate Tax Exemption

Prior to the passage of the Tax Cuts and Jobs Act (TCJA), the federal estate tax exemption was roughly $5 million. Until 2025, the exemption is increased to $11.18 million for individuals, and married couples can choose to combine their exemption. Although there is no guarantee that the exemption won’t go back down in 2026, there are ways that you can take advantage of the increased exemption while it exists.

Consider Giving Large Gifts to Family and Friends

By gifting cash or assets inside of the estate prior to passing, it will likely reduce the value of your estate when you pass. Therefore, you may not have to pay any taxes at the state or federal level. If your estate is worth more than the lifetime gift and exclusion limit, whatever portion exceeds the limit will be taxed at a rate of 40 percent. It is important to consider that items that are gifted do not qualify for a step up in basis.

Consider a Charitable Trust

If you don’t want to lose access to cash or assets today, you may want to put them into a charitable remainder trust. What this does is allow you to collect any income that the trust generates while you are alive. The money that remains in the trust after you pass will automatically be gifted to charity. This takes the money out of your estate automatically after passing without losing control over it while still alive.

Are You Worried About a Potential Claw Back?

An estate planning lawyer in Las Vegas may help you create an estate plan that accounts for potential claw backs that may occur after 2025. However, the good news is that the IRS is considering a rule that would prevent this from occurring as long as a gift or other action was taken prior to 2026.