Kneen I am an attorney living in Encinitas.
If you want to leave assets to your heirs when you die, careful planning is required to avoid paying transfer taxes that are nearly half the value of a portion of your estate. Transfer tax, also known as gift and inheritance tax, is a tax on the privilege of transferring assets to loved ones, such as children and grandchildren, whether during your lifetime or at your death. On January 1, 2026, the federal basic deduction (the amount by which individuals can exempt themselves from transfer taxes during their lifetime and upon death) will be reduced by about half of what it is now. U.S. citizens who die in 2024 can pass up to $13.61 million to their heirs in a combination of lifetime taxable gifts and asset transfers at death. Starting January 1, 2026, the basic federal exclusion will be reduced to $5 million in line with inflation, but experts currently predict the exclusion will be between $6.5 million and $7 million. .
All taxable gifts made during your lifetime and all assets transferred at your death are included when calculating the value of your gross estate. For example, your home, items in your home, bank accounts, brokerage accounts, retirement accounts, cash, pensions, jewelry, boats, vehicles, real estate, and life insurance (unless held in an irrevocable trust) It is “taken into account” in determining the value of real property for transfer tax purposes. This means that if you own it, it will generally be included in your gross estate and, with limited exceptions, subject to transfer taxes.
The right strategy for reducing your taxes will depend on each person’s individual facts and circumstances. However, in general terms, because the federal basic deduction is a unified credit, meaning the credit applies to an individual’s total lifetime and death transfers, through the lifetime gift program he will It is possible to maintain the higher exclusion amount for 2025. For example, if her 2026 exclusion is $7 million, to maintain her current exclusion above $7 million, an individual must remove her $7 million before January 1, 2026. You must make a gift that exceeds that amount. When considering large gifts, individuals should be aware that in April 2022, the Treasury Department and his IRS will issue Proposed Regulation § 20.2010-1(c)(3), which, if implemented, will eliminate the current exemption. You should be aware that certain types of gifts are restricted. The benefits of certain types of gifts may be restricted if he is made within 18 months of the date of death. Although this regulation is only proposed and not final, it should be considered for careful planning.
If a multi-million dollar gift is too depleting of a donor’s assets, the donor may use a less aggressive gifting strategy to move valuable assets out of his or her estate over time. One of her strategies is to create an annual exclusion gift. Annual exclusion gifts are completely tax-free gifts. For example, in 2024, in addition to the basic federal deduction, individuals can donate up to $18,000 to an unlimited number of people without paying transfer taxes (this is commonly referred to as an “annual exempt gift”). ). This means that if an individual gifts her $18,000 to her 10 people in 2024, the $180,000 will move out of the estate completely free of transfer taxes. Individuals can do this every year. Donations of any amount to qualified charities, whether made during your lifetime or at your death, are completely exempt from gift and estate taxes. In addition to annual exclusion gifts and charitable gifts, individuals can also pay an unlimited amount of tuition (not room, board, or fees) to an unlimited number of people. Individuals can also pay an unlimited number of eligible medical expenses, including medical insurance, on behalf of an unlimited number of people. To obtain unlimited gift tax exemption for claiming tuition and medical expenses, all payments must be made directly to the service provider.See 26 C.F.R. Section 25.2503-6.
In summary, options are available when planning for future tax law changes. The right option for each person will depend on that person’s specific facts and circumstances, ranging from aggressive strategies to consistent “bonus” opportunities such as annual deductible gifts, tuition payments, and medical expense payments. This ranges from carrying out and transferring assets from personal property to the ongoing transfer of assets. time.
Disclaimer: Estate and tax planning is complex and requires professional guidance. Nothing in this article should be considered legal advice. Please consult your legal and financial advisors.
