Federal Estate Tax Exemption and Wealth Transfer: Part I

The federal estate tax exemption, a critical component of wealth transfer planning in the United States, is set to undergo significant changes in the coming years. Under the Tax Cuts and Jobs Act (TCJA) enacted in 2017, the exemption amount in 2025 is $13.99M per person with portability between spouses which allows shielding $27.98M from federal estate taxation. During the Trump administration, the exemption may remain in place and not “sunset” for several more years.

The Current Landscape of the Federal Estate Tax

The estate tax, often referred to as the "death tax," is a levy on the transfer of assets from deceased individuals to their heirs. It applies only to estates exceeding the exemption threshold, with rates ranging up to 40%.

Implications of the Sunset

If the federal estate tax exemption reverts to pre-TCJA levels, millions of additional estates could become taxable, significantly increasing the tax burden on families and potentially forcing the liquidation of assets to pay the tax. This change would have far-reaching implications:

1. Wealth Transfer Strategies: Families may need to revise their estate plans to account for the lower exemption, exploring tools such as irrevocable trusts, charitable donations, and lifetime gifting strategies.
2. Impact on Family-Owned Businesses and Farms: These entities often face challenges in liquidity, and a reduced exemption could lead to the forced sale of assets to meet estate tax obligations.
3. Increased Administrative Complexity: Estate planning professionals would need to navigate more frequent tax filings and audits as more estates become subject to the tax.

The Trump Administration’s Proposal

During the Trump administration, there were discussions about extending the enhanced estate tax exemption beyond 2025. Advocates for an extension cited several key arguments:

• Economic Growth: They contended that a higher exemption supports economic stability by allowing businesses to remain in family hands, fostering job retention and long-term investment.
• Taxpayer Relief: Extending the exemption would prevent a sudden tax increase for families who have structured their estate plans based on current law.
• Predictability in Planning: A longer horizon for the enhanced exemption would provide individuals and families with greater certainty in their financial planning.

Proposals to make the higher exemption permanent or extend it for an additional five years gained traction among policymakers and industry groups. However, such measures faced opposition from those who viewed the estate tax as an essential tool for addressing wealth inequality and generating federal revenue.

Planning Strategies in Light of Uncertainty

Given the uncertainty surrounding the future of the estate tax exemption, individuals and families should take proactive steps to prepare:

1. Lifetime Gifting: The current high exemption presents an opportunity to transfer wealth to heirs tax-free through lifetime gifts. Utilizing this exemption before the sunset could lock in significant tax savings.
2. Trust Structures: Establishing irrevocable trusts, such as grantor retained annuity trusts (GRATs) or spousal lifetime access trusts (SLATs), can help shield assets from future estate taxes.
3. Charitable Giving: Donating to charitable organizations not only reduces taxable estates but also supports philanthropic goals.
4. Review and Update Plans: Regularly reviewing estate plans with legal and financial professionals ensures alignment with changing laws and personal circumstances.

For Informational Purposes only and not for legal or tax advice.

About the Author – Marie Feindt, JD 

Marie Feindt is the Planning Specialist – Estate Attorney at Members’ Wealth, a boutique wealth management firm that offers a comprehensive and holistic approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of estate planning experience, Marie and the Members’ Wealth team thrive on bringing clarity and confidence to clients’ unique situations. She believes everyone, young adults and older, need the essential documents to conserve and preserve and transfer assets accumulated during lifetime to the next generation.

Marie received her JD from Widener University School of Law, her bachelor’s degree from Penn State University, University Park and is currently enrolled in the Villanova University Charles Widger School of Law Graduate Tax Program.

Marie is an Adjunct Faculty at the Villanova University College of Professional Studies Paralegal Professional Certificate Program where she teaches Estates & Trusts and Civil Procedure & Litigation and Torts & Personal Injury Law.

Marie volunteers for a monthly legal clinic at The Salvation Army in Chester, PA facilitated by the Christian Legal Clinic of Philadelphia. She has served on the Women’s Commission of Delaware County and as a Board Member for the Delaware County Literacy Council.

Marie enjoys biking, reading, yoga and walking in her free time with her husband and three children.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

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