Navigating Wealth Transfer: 7 Essential Strategies to Prepare for the Impending Sunset of the Gift and Estate Tax Exemptions

By Michelle Chapin, Managing Director, Wealth Strategy and Amanda Plonski, Managing Director, Wealth Advisor

What is the lifetime gift tax exemption amount?

The current lifetime gift tax exemption amount is $13.61 million for each citizen. Under current law, the exemptions will revert to $5 million per individual (indexed for inflation) on Jan. 1, 2026, unless Congress acts. This potential shift underscores the urgency for individuals and families to work with their financial advisors to optimize their wealth transfer strategies.

Navigating Wealth Transfer: Seven Essential Strategies

Below are 7 advanced planning strategies to help you leverage the current estate and gift tax exemptions.

  1. Start your wealth transfer planning early.
  2. Estate attorneys are busy and need ample time to design a plan and help you fund it properly. Fortunately, you can create a trust structure early and leave it unfunded for now. Clients who wait until November or December to transfer wealth may find it difficult to find an available attorney or may feel rushed into a transaction.

  3. The Presidential election could impact estate and gift tax exemptions moving forward
  4. If you create a trust now, consider adopting a ‘wait-and-see’ approach before transferring assets to the trust in order to assess the results of the 2024 election. We have the opportunity to see the composition of Congress and the presidency on or shortly after the election on November 5, 2024, which can provide insight into which direction tax laws may shift in 2025.

  5. Married couples should create & fund their SLATs in different tax years
  6. Married couples planning to create non-reciprocal Spousal Lifetime Access Trusts (SLATs) should make transfers to their trusts in different tax years. Reporting of these transactions should similarly occur in different tax years. Making non-reciprocal transfers in different tax years helps differentiate the trusts and can help avoid an argument by the IRS that the transfers were reciprocal and should be unwound. For example, one spouse may want to create and fund a trust in 2024, while the other delays creating and funding a trust until 2025.

  7. Leverage grantor trusts to maintain flexibility and save taxes
  8. Transfer assets that you expect will appreciate significantly, as the gains will occur outside of your taxable estate. If the assets have a low basis and do not appreciate over time, make sure the trust, if it is a grantor trust, authorizes the grantor to swap assets of equivalent value to remove low basis assets from the trust in exchange for higher basis assets. This is because most assets in your estate will receive a new basis, usually a step up in cost basis, at your death, but assets in irrevocable trusts that you create do not.

  9. Don’t give away more in lifetime gifts than you can afford
  10. Don’t give away more than you can comfortably afford. Modeling contemplated gifts will help ensure your financial independence won’t be jeopardized. For example, Cresset utilizes cash flow modeling software to quantify financial independence and project various outcomes to help our clients make informed decisions around how much gifting is appropriate.

  11. Decide if utilizing gift & estate tax exemptions is the right strategy for you
  12. Don’t let the “tax tail wag the dog.” Remember to balance the estate and tax benefits of various wealth transfer strategies with the increased complexity they bring. Simplicity and flexibility may ultimately prove more valuable to you and your family members than tax savings.

  13. Enlist a wealth advisor to help with your wealth transfer planning
  14. Wealth advisors can help prepare you for the important questions your counsel will likely ask when designing your wealth transfer plan. They can help you organize your thoughts, provide advice and guidance on best practices, review draft estate documents, help you fund the transfers, and help you fulfill any ongoing obligations, such as filing a gift tax return or making timely payments on promissory notes. Their guidance can help lessen the time you spend with your attorney, thus saving you money, and their assistance can help you respect the formalities of the transfer, which can be beneficial in the event of an IRS audit.

Contact us to learn how you can capitalize on the current gift and estate tax exemptions.

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About Cresset

Cresset is an independent, award-winning multi-family office and private investment firm with more than $45 billion in assets under management (as of 04/01/2024). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.

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