Even if you have a sound estate plan in place and your priorities have not changed, it is essential to stay aware of legal shifts that could negatively affect your intended beneficiaries. For example, a sharp reduction in the estate and gift tax exemption scheduled to take place on January 1, 2026 could mean that assets you thought were going to your loved ones will instead be taken by the federal government. 

The increased estate and gift tax exemption, introduced under the Tax Cuts and Jobs Act (TCJA) in 2018, has provided significant opportunities for individuals to transfer wealth while minimizing tax liability. However, this higher exemption—currently $13.99 million per individual or $27.98 million per married couple—is set to expire at the end of 2025 unless Congress extends it. If the law sunsets, the exemption will return to pre-TCJA levels, possibly $7 million or less. 

As you can never be sure what the future holds, it is wise to take prompt action to guard against the potential of a lower estate tax exemption. Some key approaches to consider include the following:  

  • Utilizing the current gift tax rules — Until the end of 2025, you can make tax-free gifts to loved ones under the existing high exemption amount, regardless of what the level is upon your death. By giving real estate, business interests or other high-value assets to family members, you can remove them from your taxable estate. You can also give up to $19,000 per recipient without reporting it to the IRS.

  • Transferring wealth through trusts — There are several types of irrevocable trusts that can transfer assets so that they are not subject to estate taxation. One possibility is a Spousal Lifetime Access Trust (SLAT) lets a husband or wife utilize trust assets during their lifetime. Once they die, remaining funds and property are distributed outside of the probate system. 

  • Reviewing the cost basis of assets — When gifting or transferring assets, careful planning can increase the cost basis for recipients, reducing potential capital gains taxes in the future. This is particularly useful for highly appreciated assets such as stock portfolios or investment properties.

  • Making charitable contributions — You might have plans to support one or more charitable organizations in your will, but advancing those contributions could reduce estate tax exposure. 

Waiting until the end of 2025 may leave insufficient time to execute these estate planning strategies effectively. Proactively addressing the potential sunset now ensures you can maximize the current exemption while it remains available.

Pullin, Fowler, Flanagan, Brown & Poe assists clients with the preparation of wills, trusts and other legal instruments as part of a comprehensive estate planning program. We serve West Virginia, Ohio and Kentucky clients from offices in Charleston and three other locations. Please call 304-344-0100 or contact us online for a consultation.