Preparing for lower estate tax exemptions

On Behalf of | Jan 29, 2024 | Estate Planning |

Many Massachusetts are revisiting their estate plans. That is because the federal estate and gift tax exemptions will be significantly reduced in 2026. These exemptions were almost doubled when the Tax Cuts and Jobs Act was signed into law in 2017, but the increase was not permanent. When the TCJA provisions expire at the end of 2025, the basic exclusion amounts will revert to their 2017 levels. Those figures will be approximately $7.5 million for individuals and $14.5 million for married couples. They could be slightly higher or lower depending on the rate of inflation. In contrast, the estate tax exemption for 2024 is $13.61 million for individuals and $27.22 million for married couples.

Credit shelter trusts

To lessen the impact of the estate tax reductions, many families with sizeable estates are adding credit shelter trusts to their estate plans. Assets placed into these irrevocable trusts are no longer part of the creator’s estate, so they are not subject to estate taxes. CSTs, which are also called family or bypass trusts, are created when a spouse dies to transfer estate assets to the surviving spouse. When the surviving spouse passes away, the assets pass to the couple’s beneficiaries.

Transferring assets

Other estate planning strategies that individuals and married couples can use to transfer assets include making gifts, placing part of the current gift and estate tax exemption into an irrevocable trust that benefits their heirs and leaving some of their assets to charity. The annual gift tax exemption in 2024 is $18,000 for individuals and $36,000 for married couples. When determining whether or not to take these steps, individuals and couples should consider how much their assets are likely to be worth when the BEA changes go into effect in 2026.

Revisiting and revising estate plans

Estate plans should be revisited on a regular basis. Many people are revising their estate plans because estate tax exemptions are scheduled to be almost cut in half in 2026, but it is also a good idea to revisit estate plans when economic circumstances change or after major life events.