Don't wait to establish high exemptions from wealth and gift taxes

Don’t be surprised unprepared by an unknown tax future. That’s the message I have for Americans ahead of a tax change that will impact millions of us.

When it came into effect in 2017, the Tax Cuts and Jobs Act (TCJA) was the most sweeping overhaul of the U.S. tax code in decades. And if certain provisions of it expire as scheduled in 2025, virtually every American will be affected if they don’t act now.

The 2024 presidential election is just days away, and with it will likely come many tax-related changes that will impact millions of Americans. If you have your financial plan recently, and especially those with a estate planI cannot emphasize enough the urgency of taking advantage of these historically high exemptions now, Today. Not after the elections. Now. This is a very unique opportunity to maximize the legacy you leave for your loved ones.

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Tax planning is a long and involved process, and waiting is not a wise option. Whoever your advisor is, contact them today and be at the forefront of helping you navigate the significant complexities that come with it.

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

Let’s simplify what’s at stake for Americans

Normally, the federal government levies a transfer tax of up to 40% on certain asset transfers, in the form of a transfer tax. inheritance tax this applies in the event of death or a gift tax on lifetime transfers. An additional generation-skipping transfer tax – possibly up to 40% – may apply if you make these transfers to a grandchild or further descendant. There may also be state-level estate or inheritance taxes involved, depending on where you live. However, the TCJA currently allows individuals to transfer a significant amount of assets from their estate without having to pay for it. each 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 donate up to this amount – above which any donation would be subject to a tax of maximum 40%. .

This exemption is historically high, but also potentially limited in time. The increased exemption is expected to “set” after 2025, dropping to approximately $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 maturity date.

Notably, these gifts cannot be taxed retroactively if the TCJA provisions are not extended.

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

In other words, the best way to take advantage of the opportunities before us is to work with one financial professional who can see the full picture of your financial and tax situation. Your advisor can then put together the right team and draw up a plan so that you can benefit from the exemption now and then maintain wealth for generations to come.

Consider taking action now

Don’t put this off any longer. The clock is ticking. Considering all that comes with estate planning of this magnitude, the time to act will pass more quickly than you might think. The turnaround time for some individuals can vary from six months to more than a year.

Figuring out how much of your wealth to transfer, to whom, or in what form (e.g., should your children receive cash or a share of the family business? How much? Should they receive it directly or in some form) is not a quick process. ) to trust?). And even after the big decisions have been made, analyzing and drafting documents by lawyers, accountants and other advisors isn’t always a quick endeavor.

You also need to consider the unprecedented demand and competition for qualified professionals – lawyers, accountants, etc. – and how that will impact your timeline for creating and executing a plan.

The future of the tax code will always be in flux. Trying to anticipate these changes can be difficult, if not impossible. Instead, investors would entrepreneurs and people with inherited wealth must prioritize flexibility to protect against future uncertainty.

If the higher exemptions are extended, you have already recorded the benefits in advance. Contact a qualified financial planner now to guide you through the process and create a long-term plan that meets your needs.

This article was written by and represents the opinions of our contributing advisor, not the Kiplinger editorial staff. You can consult the details of advisors at SEC or with FINRA.