Reduce your future tax exposure by giving from your estate now

Title: Understanding the Impending Changes to the Federal Estate Tax Exemption

The federal estate-tax exemption is a valuable tool for wealthy families looking to minimize inheritance tax liabilities. However, changes are on the horizon that could impact the size of this advantage. In just over two years, some families who currently pay no inheritance tax may find themselves facing significant federal taxes unless action is taken.

Currently, the exemption limit sits at $12.92 million for individuals and $25.84 million for married couples. This limit was set by Congress in 2017 and doubled the existing exemption. However, this legislation included a sunset provision that will see the exemption revert to pre-2018 levels on January 1, 2026. This means the exemption could halve, dropping to less than $7 million for individuals and about $13 million for married couples.

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This reduction in the exemption could expose more estates to federal taxation, with the percentage of estates subject to tax potentially doubling. Families with less wealth may be affected for the first time, facing inheritance tax on assets like homes, vacation homes, and liquid assets.

To navigate these impending changes, it’s crucial for benefactors to start considering adjustments to their estate plans as soon as possible. Strategies like making annual gifts to heirs and funding college savings plans for young relatives can help reduce the size of the estate and minimize tax exposure.

Consulting with estate planners, financial advisors, or tax professionals knowledgeable about federal tax rules and estate taxes can help individuals make informed decisions about how to manage their wealth and assets in light of the upcoming changes to the estate tax exemption.

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By taking proactive steps and working with expert advisors, families can ensure that more of their wealth goes to their loved ones and less to the taxman in the years ahead.

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