Jumbo Gift & Estate Tax Exemptions – Sundown Of A Dream?

Jumbo Gift & Estate Tax Exemptions – Sundown Of A Dream?

“Stevenotes” became the term used to describe public addresses given by the late CEO of Apple, Steve Jobs.  The presentations usually included the announcement of many product releases, the most significant often presented last when most listeners thought the address had reached its conclusion . . . that is until Jobs would say, “One last thing.”

Perhaps he took a cue from the Hebrew Proverbs, e.g., “Three things are too wonderful for me,” then, “four I do not understand.”

In that vein, there are five things you need to know for successful planning with your clients’ estate tax lifetime exemptions, six if you are to complete the most beneficial product sale for all.

1) Exemption amounts will drop – Currently every taxpayer can give away during life or at death a total of $12,060,000 without paying any transfer tax. But this amount (adjusted for inflation each year) will be reduced by 50% on January 1, 2026. For convenience in this article, we’ll use an even $12,000,000 for the current exemption and $6,000,000 for the anticipated reduced exemption in 2026.

2) The full exemption can be used before it drops – If a client’s net worth is large enough and he or she can do without, the easiest way to take advantage of the $12,000,000 exemption is to give it away before 1/1/2026. There will be no claw-back of the excess gift into the estate when the exemption amount is reduced.

3) Spouses have two exemptions – A married couple can transfer up to $24,000,000 of their combined net worth without gift or estate tax before the reduction.

4) Spouses can use both exemptions at the second death – If one spouse dies with any unused exemption leftover (which occurs often when all property is left to the surviving spouse under the unlimited marital deduction) his or her unused exemption can be preserved and used by the surviving spouse at the second death, but the unused exemption is preserved only if an estate tax return is filed at the first death, whether any tax is owed or not!

5) Spouses with a limited estate can take partial advantage of the current high exemptions by using all of one exemption first – One spouse can give away $12,000,000. Even after the sunset at 1/1/2026 the other still has the remaining reduced $6,000,000 exemption.

6) Spouses can insure against unavoidable estate tax liability more economically – Because the estate tax bill on a married couples estate can be (and usually is) easily pushed to the second death, life insurance benefits aren’t needed until then. Always call for a sales ledger for survivorship coverage on the couple in an amount covering the anticipated liability.  The  joint life expectancy dramatically reduces the cost of coverage.

Call  our team with questions you have on your casework involving lifetime exemption planning and to discuss other concepts beyond that to reduce transfers taxes for your high-net-worth clients. This is just one of three, no four, other common and effective estate planning concepts often used.