Back in December 2017, the most significant lax legislation in more than 30 years was signed into federal tax law. The Tax Cuts and Jobs Act of 2017 (TCJA) provided significant, but temporary, relief from the federal estate tax for those who die prior to the end of 2025. It can also provide permanent estate and gift tax relief for those who take advantage of gifting opportunities prior to the end of 2025.

The TCJA increased the federal gift and estate tax exemption from US$5,490,000 in 2017 to US$12,920,000 in 2023. Due to inflationary adjustments built into the TCJA, the IRS recently announced that the federal gift and estate tax exemption will be increased to US$13,610,000 as of January 1, 2024 – a significant hike of US$690,000 per transferor (US$1,380,000 for a married couple).

However, this rising exemption is not legislated to last forever. The increases in the federal gift and estate tax exemption are temporary, and this “big” exemption is scheduled automatically to fall at the end of 2025 to US$5 million adjusted for inflation.

While the increased federal estate and gift tax exemption is only temporary, the TCJA provides tremendous opportunities to use this increased exemption prior to its expiration through the use of effective and efficient estate planning gift strategies that lock in the tax benefits, such as:

• Dynasty Trusts, which provide generations of enhanced protections from creditors’ claims, divorce claims and future federal estate taxes and state estate taxes
• Spousal Lifetime Access Trusts (SLATs), which protect assets from future estate taxes while retaining those assets for use in the current generation prior to such assets passing to children and grandchildren in further protective trusts
• Grantor Retained Annuity Trusts (GRATs), which allow gift tax-free transfers of assets to the next generation
• Irrevocable Life Insurance Trusts (ILITs), which protect life insurance proceeds from federal estate taxes and state estate taxes
• Charitable Lead Annuity Trusts (CLATs), which provide for both a charitable income tax deduction and a gift tax-efficient transfer of assets to the next generation

For residents of states that currently have their own separate state estate taxes, such as New York, Illinois and Connecticut, these state estate taxes also need to be separately addressed to decrease the tax liability facing families when a loved one passes.

Taking into account the uncertainty of future tax legislation and the built-in automatic expiration of the increased federal gift and estate tax exemption under the TCJA, this is a “Use It or Lose It” opportunity – the rise before the fall.

If you wish to discuss these developments and how taking advantage now of the temporary “Big” exemption can benefit you and your family, please contact me at brian.raftery@dentons.com or +1-212-398-5773. I look forward to hearing from you.