Estate & Gift Planning Insights

Why is Now the Perfect Time to Act?

The current environment for estate planning and gifting is about as favorable as it has ever been in U.S. history. But this “golden age” is not likely to last. In the near future, estate tax laws are almost certain to become less favorable.

This makes a compelling case for taking action sooner rather than later to reduce tax liabilities for many estates.

At the end of the first year of Donald Trump’s presidency, the Tax Cuts and Jobs Act (TCJA) doubled the exemption from $5.6 million to $11.2 million per individual. As of 2022, the exemption has risen to $12.06 million per individual ($24.12 million for married couples) and is expected to rise to around $12.9 million ($25.8 million for married couples) in 2023 due to inflationary adjustments to the estate tax provisions of the TCJA. Unless Congress acts to extend this provision of the TCJA prior to the sunset of this provision at the end of 2025, the estate tax exemption will automatically drop to pre-TCJA levels, or approximately $6.4 million per individual after adjusting for inflation.

Although Congress did not pass any major estate tax legislation in 2021 or 2022 as was previously expected, the possibility still remains that progressive estate tax reform could still be forthcoming. However, with much of the political capital spent and with mid-term elections looming, the political will for any significant legislation has diminished considerably. Experts on both sides of the aisle predict that the incumbent Democratic Party is unlikely to retain control over both the House of Representatives and the Senate after the mid-term elections in 2022. Any shift in the balance of power away from the incumbent party would greatly reduce the possibility any progressive tax reform under the current administration. As such, the main question is whether the estate tax provisions of the TCJA will be allowed to expire or not at the end of 2025.

Authored by Alex Tittel, ASA, with contributions from Mike Hill, FASA, CPA, ABV, and Will Frazier, ASA.

©2022