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You may be able to take advantage of the doubled federal tax exemption with your estate strategy

You may be able to take advantage of the doubled federal tax exemption with your estate strategy

June 06, 2024

There's a ticking clock that you should take advantage of. It was part of the 2017 Tax Cuts and Jobs Act (TCJA), and right now, it may be one of the most important levers you can pull.

The TCJA doubled the lifetime estate, gift, and generation-skipping transfer tax. In 2024, the exemption amount is $13.61 million for individuals and $27.22 million for married couples at the federal level. Unless Congress changes this law, the exemption will revert back to its 2017 level, adjusted for inflation. The TCJA exemption amounts can be captured only through use for taxable gifts (or transfers at death) before December 31, 2025.

According to Forbes, as we're in the advent of the Great Wealth Transfer — with more than $84 trillion expected to pass to younger generations in the coming decades — the clock is ticking to develop a strategy that can incorporate the TCJA's features.

So, how can you take advantage of the law now? Here are two ideas that you might consider:

  • Spousal Lifetime Access Trusts (SLATs): A SLAT is an irrevocable trust you can create for your spouse, through which you can gift all or a portion of your estate tax lifetime exemption. Your spouse will have access to these assets during their lifetime since they will be the beneficiary. This grants you the benefit of removing assets from your taxable estate by using up your federal estate tax exemption amount. If you do this in 2024, you can fund the trust up to $13.61 million. Waiting until 2026 may lower the allowable contribution. Spouses can also consider setting up dual SLATs, which are designed to benefit each other.
  • Dynasty Trusts: These irrevocable trusts can be structured to last for as long as the trust creator has living descendants and can be designed to utilize the trust creator’s gift and generation-skipping transfer tax amounts. Transferring property to a dynasty trust through the combination of a taxable gift and a sale to the trust might help manage tax exemption amounts.
  • Using a trust involves a complex set of tax rules and regulations. Both SLATs and dynasty trusts have limitations, so before moving forward, we encourage clients and prospects to work with professionals who are familiar with the relevant rules and regulations and can offer guidance on various trust strategies.

These are just some of the potential strategies available to you. After carefully reviewing your goals, a trained professional can present estate management choices that may help in your specific situation.

Lastly, if you don't already have a foundational estate strategy in place, now is the time to consider creating one. This process doesn't have to be complicated.

We'd be happy to speak with you and help you figure out the best strategy for you and your loved ones.