In 2017, a window was opened. And at the end of 2025, that window will close. This breath of fresh air was granted by the passing of the Tax Cuts and Jobs Act (TCJA) of 2017, which increased the Basic Exclusion Amount (BEA) from $5 million to a new base of $10 million (indexed for inflation after 2011) for gifts and inheritances bestowed from 2017 through the end of 2025. Though there are many motivations for lifetime gift-giving, it is often a strategy to maximize the value of wealth and inheritance while minimizing its subjectivity to taxation as much as possible. An estate tax is technically calculated as a combined value of lifetime gifting and taxable estate, but lifetime gifting also has the added benefit of removing the appreciation of the amount gifted from the value of the estate, so the incremental amount is not subject to the estate’s overall taxation. And of course, there are some gifts that are exempt from taxation altogether, like annual exclusion gifts of $15,000 or less per recipient and direct payments of medical expenses or school tuition. The Tax Cuts and Jobs Act has opened a window of gifting for those looking at federal estate taxes, but this legislation has an expiration date of January 1, 2026, at which time the $10 million bases will revert back to the $5 million base and the ability to take advantage of the increased estate and gift tax exclusions will cease. We are currently in an important opening of opportunity that should not be missed.
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