If you have an estate that’s worth enough to trigger the federal estate tax, it’s crucial to take steps to reduce or even eliminate these taxes. They can take a big bite out of the assets you want your loved ones as well as charitable organizations to have after you’re gone.
Even if you’re conscientious about doing this when you create your estate plan, it’s important to remember that laws are subject to change – and that these changes can negate your careful planning.
What to know about a sunset clause in the TCJA
The Tax Cuts and Jobs Act (TCJA) was a far-reaching federal law that took effect at the beginning of 2018. It was considered the largest change to the individual tax code since the 1980s. It contained a number of provisions that were beneficial to those with considerable wealth, so it was – and remains – politically controversial.
One of the changes was a provision that approximately doubled the estate threshold for exemption from the federal estate tax. That gave considerably more Americans exemption from the federal estate tax. The threshold has increased slightly each year – to $13.6 million this year.
This provision, along with some others in the TCJA, included a sunset clause. It is scheduled to sunset at the end of 2025. That means unless Congress chooses to extend it, the exemption threshold would be reduced by about half. It remains to be seen what the makeup of Congress will be next year.
What can you do to prepare?
If the value of your estate could make it subject to estate taxes, whether the exemption level continues to rise or drops by half, it’s a good idea to look at options for minimizing its taxable value while ensuring that your heirs and other beneficiaries get the assets you intend for them to have.
This can be done through various types of trusts, gifting and other estate planning strategies. The sooner you explore these options with experienced legal guidance, the better prepared you’ll be for anything.
It’s wise to get financial guidance as well as experienced legal guidance to help prepare for this and other potential changes without upending your estate plan if they don’t occur. It’s a delicate balancing act. That’s why you shouldn’t do it alone.