Now is the time to revisit estate tax planning

The 2017 law that dramatically increased the estate tax exclusion amount is set to expire on December 31, 2025. Unless Congress acts, the lifetime transfer exemption will fall from $13.99 million (the projected 2025 level) to close to $7 million. And although clients may think 2025 sounds like a long way off, as a financial professional, you know that effective planning needs to happen well before that deadline.

You can proactively address the uncertainty by educating your clients about key factors that will impact their tax burden and offer effective estate planning and gifting strategies to consider – regardless of future legislation around exclusion levels.

FACTOR 1: USE IT OR LOSE IT

The lifetime transfer exemption can be used only once. If a client opts to use their full exemption amount in 2025, they can transfer up to $13.99 million without a tax burden. If they wait and the exemption amount does drop to $7 million, they will have lost the tax protection on $6.99 million of those assets.

FACTOR 2: CARRY-OVER TAX BASIS

If a client transfers assets through their estate at death, beneficiaries benefit from a stepped-up cost basis. That’s not the case for giving during their lifetime. For that reason, clients need to balance the benefits of estate gifting with the risks that the exclusion could decline and the value of the asset could rise.