We have a really important presidential election coming up in 2024—about 5 months away—and it’s highly relevant to estate tax planning.
Let’s go over a few things to keep in mind. Back in 2017, the Tax Cuts and Jobs Act (TCJA) was passed. At that time, you could pass roughly $5.5 million in assets without being subject to any estate tax. That $5.5 million is what’s known as the exemption amount. So, anything under that exemption amount is exempt from being subject to estate tax.
As of 2024, the exemption amount is $13.61 million. So, anything over that exemption amount is going to be subject to estate tax, which ranges anywhere from 18% to 40% and reaches that 40% rate pretty quickly.
However, on January 1, 2026, the TCJA tax laws are scheduled to sunset. When that happens, the $13.61 million exemption—or whatever it’s going to be next year, as it will increase based on inflation—will drop back down to roughly $5.5 million. This amount will also be subject to inflation adjustments, so it might be around $6 million or so, but we won’t know until we get there. The point is that it’s basically being cut in half.
This presents an opportunity for people to start doing tax planning. If we have a Democrat in office or continue to have one in office, then we’re likely going to see the sunset of the TCJA tax laws. If a Republican takes office, there’s the possibility that the TCJA tax laws could be extended, and the exemption might continue to increase. Even with a Republican, it could potentially lapse—we just don’t know until we get there. Therefore, we have to plan as if the sunset is going to happen.
The good thing about the current law is that if you use up your exemption today—say, $13.61 million or whatever it’s going to be in 2025 (likely around $14 million)—you’re locked into that amount. So even if the exemption amount falls back down to $5.5 million, $6 million, or $7 million, you’re locked into today’s exemption amount.
This means that if you’re already over that exemption amount or you’re heading toward it—whether it’s $13 million, $14 million, or $7 million—it makes a lot of sense to start planning today.
There are a lot of different strategies that we can implement to account for estate tax planning issues. While that’s not the main point of this video, there are various options available, including gifting assets, selling assets, different types of trust planning, and charitable planning. So, it’s important to start having these conversations now before the law sunsets.