Annual Gifting - Children, Grandchildren, Non-Profits: A Smart Way to Manage Your Estate

Are you an affluent investor? Have high assets? Do you want to ensure that your estate is properly managed in a way that benefits your loved ones?

If so, you may wish to consider annual gifting as part of your overall estate planning strategy. 

Annual gifting enables you to lower your tax bracket and manage your assets while also providing meaningful gifts and legacies for those who are important in your life.

But there are some changes coming down the road at the end of 2025.

Let’s take a look at how this could impact your future estate planning strategy.

Understanding Annual Gifting

Annual gifting is a simple yet powerful way to protect your assets while transferring wealth to your loved ones or favorite charitable organizations.

It’s a practice that involves the transfer of assets and financial resources from one party to another, usually family members or close friends, with the intention of expressing love, appreciation, or gratitude. 

The Tax Cuts and Jobs Act of 2017 opened up a significant estate planning opportunity for affluent individuals and families. 

By increasing the lifetime estate tax exemption from $5.6 million to $12.92 million for individuals and from $11.8 million to $24.8 million for married couples (inflation-adjusted as of 2023), it provided a game-changing incentive for strategic wealth management. 

This substantial boost allows for more effective long-term financial planning and wealth preservation strategies.

But there’s a catch. It’s set to sunset or expire for these higher gifts and exemption amounts at the end of 2025.

What does that mean?

If Congress fails to take action by this date, the exemptions will revert to their 2017 levels. 

To give you an idea, with inflation adjustments, the amounts will be around $7 million for individuals and $14 million for married couples. It’s crucial for you to be aware of these potential changes.

What Can You Do to Offset the Change? Maximize The Gift Exemption Tax!

To take full advantage of the expanded gift tax exemption, you need to act now before it expires in 2026. 

By making one or more gifts, you can secure the benefits of this exemption, which will not be available once it sunsets. 

For instance, if the exemption reverts to $7 million, lifetime gifts of $2 million will have no impact on the sunsetting exemption. However, a gift of $9 million would make effective use of the sunsetting exemption.

If you want to maximize the expiring exemption amount within the next two years, consider making gifts totaling $12.92 million per individual. For a married couple filing jointly, the total gifts should amount to $25.84 million.

Not only do these gifts reduce the value of assets in your estate, but they also offer additional advantages. 

I know this seems a bit confusing but don’t worry, you don’t have to figure it out on your own.

Developing and implementing a thoughtful estate plan requires time and attention to detail. 

If you anticipate having a taxable estate after 2025, don't wait until the deadline draws near; contact us today!

Need help? Have questions? We are here to assist you, call us!

DISCLAIMER: The content contained herein is for general informational purposes only.  These materials do not constitute legal or other professional advice.  We do not accept any responsibility for any loss that may arise from reliance on this information.  No reader should act or refrain from acting based on information contained in this article without seeking advice of counsel.