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Gift Planning Amidst the Looming Exclusion Reduction

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In the realm of estate planning, there's a significant development on the horizon that demands attention – the pending change in a taxpayer's lifetime gift exclusion. The lifetime gift exclusion is a crucial component of the U.S. tax code that allows individuals to make gifts up to a certain dollar amount over the course of their lifetime without incurring federal gift tax. This exclusion has witnessed a series of adjustments over the years, reaching a peak in recent years. With the new 2024 level, gifts up to $13.61 million (that’s $27.22 million for a married couple) can be made on a tax-free basis. However, this is slated to change at the end of 2025, falling by an estimated 50%. Given the impending reduction in the lifetime gift exclusion, there is a pressing need for individuals to evaluate their estate plans and consider making strategic gifts sooner rather than later.

Let’s pretend my wife and I have a current estate worth $20 million. (Obviously, that’s not true otherwise I wouldn’t be writing this right now, I’d be learning how to kite-surf in the Dominican Republic. But back to my point.) If we transferred our estates right now, there would be no tax consequence. If, however, we did nothing and we were both consumed by a pod of orcas while kite surfing in the Dominican Republic in 2026, our estates could incur a potential liability of over $2 million. Think how that would go over with our kids. We just shafted them out of a really nice vacation home. Of course, they’d be too overcome with grief to notice.

Here are key reasons why proper gift planning now is of paramount importance:

  • Acting now allows individuals to take advantage of the current, more favorable exclusion levels. By making strategic gifts before the reduction, taxpayers can maximize the amount of wealth transferred tax-free.
  • Strategic gift planning enables individuals to carefully consider which assets to transfer, whether it be cash, real estate, investments, or other valuable holdings. This provides flexibility in crafting a plan that aligns with individual financial goals.

Economic conditions can be unpredictable, and market fluctuations may impact the value of assets. By initiating gift planning now, individuals can navigate potential market volatility and make informed decisions about when and how to transfer assets.

Engaging with financial advisors and estate planning professionals is essential to navigating these changes successfully and ensuring that individual goals align with the evolving tax landscape.

Tell me what's on your mind. Write me at lbell@meadenmoore.com or try the old fashioned way by calling 216-928-5360.  

Lloyd W.W. Bell III is Director of the Cor­porate Finance Group at Meaden & Moore. He has over 20 years of experience in financial management.

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