Maximize Tax Savings Before the 2025 Exemption Sunset
The gift tax exemption, a key aspect of estate planning, is on a tight timeline. The exemption amount has fluctuated over the decades since first being introduced in 1932. In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act temporarily unified the estate and gift tax exemptions at $5 million. This amount was significantly increased by the Tax Cuts and Jobs Act (TCJA) of 2017 to $11.18 million per individual, adjusted for inflation. For 2024/25, the exemption stands at $13.61 million per individual ($27.22 million for married couples).
However, this exemption is set to sunset at the end of 2025. Without congressional intervention, the exemption amounts are expected to revert to pre-TCJA levels, which, adjusted for inflation, could be as low as approximately $7 million per individual in 2026.
This looming deadline means that 2025 will likely be a peak year for wealth planners, attorneys and other business advisors. If you’re considering taking advantage of the current exemption levels, now is the time to act! Here are some benefits of gifting assets before the current exemption expires:
- Avoid Future Estate Taxes: The appreciation on gifted assets escapes federal estate tax and potential estate or inheritance taxes upon the donor’s death.
- Transfer Wisdom and Experience: The act of gifting can serve as an opportunity to pass on financial knowledge and experience to the recipient.
- Immediate Benefits: Recipients can enjoy and utilize the gift now rather than waiting for the donor’s passing.
Yet, gifting does come with some disadvantages:
- Loss of Control: Donors relinquish control over the transferred assets.
- Loss of Access: Donors lose access to the gifted asset and its income.
- Tax Basis Adjustment: Gifting eliminates the opportunity for a step-up in basis to fair market value that would occur upon death.
For families aiming to pass wealth to future generations, thoughtful gifting now could offer significant benefits. The decision to gift substantial assets is complex and should be carefully considered. Factors such as your financial situation, family dynamics and long-term goals must be weighed and evaluated.
Effective planning and expert advice are crucial to maximize the advantages of gifting while mitigating potential drawbacks. Consulting with tax, legal and financial advisors will help tailor a strategy that suits your specific needs.
Valuation: A Key Component in Gifting
An accurate valuation analysis is essential in gift planning. Choosing a valuation firm that understands the intricacies of tax regulations and their application is critical. CBIZ Valuation Group, with its highly credentialed team, has been trusted for decades in navigating complex estate planning transactions. We offer expertise in valuing a range of assets, including closely held corporations, family limited partnerships (FLPs), LLCs, other asset-holding entities, real estate and other fixed assets. Our multidisciplinary team includes professionals with backgrounds and training in valuation and bearing experience across industries. Furthermore, our colleagues in accounting, tax and other advisory services within CBIZ are available to assist as needed.
CBIZ Valuation Group follows IRS Revenue Ruling 59-60 and industry standards such as USPAP and SSVS to provide precise fair market value estimates. With increased IRS scrutiny on estate and gift tax valuations, having an experienced valuation advisor is indispensable to avoid costly errors and ensure compliance.
Our Services Include:
- Valuation of Closely Held Business Interests
- Discount Studies (lack of marketability/lack of control) for fractional interests
- Business Valuations
- Real Estate Valuations including undivided interests
As you plan for the expiration of the current gift tax exemption, consider how the CBIZ approach can support your estate planning goals and provide tailored solutions for your unique situation. We are committed to understanding your needs and surpassing your expectations while maintaining the highest valuation standards.
John Rimar, author