The 2025 Wealth Planning Countdown to Preserve Your Legacy

For those with significant wealth, estate taxes can be a burden. The IRS permits a certain amount of wealth to be transferred tax-free to loved ones annually (use it or lose it – $18,000 per individual in 2024) and offers a once-in-a-lifetime exemption as well. 

Since 2010, this exemption started at $5 million per person, adjusted for inflation. The Tax Cuts and Jobs Act (TCJA) significantly increased this exemption to $13.61 million for singles and $27.22 million for couples in 2024. However, this increased exemption is set to revert to around $6.40 million per person after 2025, making it imperative to plan and execute wealth transfers soon. 

Case Study – Value of Gifting Today vs. Gifting in the Future 

Failure to utilize the full exclusion amount of $13.61 million per individual before its lapse at the end of 2025 may result in the unused amount being subject to estate or gift tax. 

Example assumes each client here is a married couple  Couple 1  Couple 2 
Current value of the estate  $50,000,000  $50,000,000 
Gifts over next three years (using full exemption available)  $0  $27,220,000 
Value left in the estate at the end of 2025  $50,000,000  $22,780,000 
Lifetime exemption available after sunset (2026 and beyond)  $12,800,000  $0 
Gross estate tax due (assume estate tax rate of 40%)  $14,880,000  $9,112,000 

Couple 1 paid an additional $5.77 million in estate taxes because they failed to utilize the expanded exclusion amount before it expires in 2025.

Tailoring Your Estate Planning Strategy 

Wealth transfer should be tailored to individual circumstances, considering various assets like cash, investments or business interests. Techniques such as irrevocable and grantor-retained annuity trusts (GRATs) can minimize estate taxes upon death. Understanding the risks and complexities of these trusts before proceeding is crucial. 

Heeding GST Tax Implications 

The generation-skipping transfer (GST) tax is an important factor in wealth planning, especially for gifts to grandchildren. Although the initial exemptions for gift and GST taxes are the same, they may be utilized at different rates. Attention to detail is crucial to prevent unintended tax liabilities, a complexity that Adams Brown can navigate with their wealth planning services. 

Balance Lifestyle & Legacy in Estate Planning 

Determining the appropriate amount of wealth to transfer involves balancing your current financial needs with the desire to save on estate taxes and preserve your family legacy. A qualified wealth planning advisor can help model different scenarios to find a suitable balance for your situation. 

Maximize Wealth Transfer While You Can 

By taking advantage of the current allowable asset transfer, you can reduce the amount of taxes owed on your estate and witness your heirs benefiting from these assets while you’re still alive. 

However, under current law, this opportunity to maximize the benefits of the current lifetime exemption will only be available until 2025. Contact an Adams Brown Wealth Consultant to ensure a purposeful and tax-efficient transfer of wealth. This will help you secure a lasting legacy for future generations.