Early action is recommended on wealth transfer planning before lower estate tax thresholds take hold. By gifting assets now, you can lock in valuations and preserve current tax exemption levels to benefit you and your family for years to come.

Federal estate tax is a tax on the transfer of property from a deceased person’s estate to their heirs or beneficiaries. Under current law, when an individual dies and their net taxable estate assets (including investments, life insurance proceeds, business valuations, real estate holdings, and lifetime taxable gifts, etc.) total $12.92 million net or less, the estate tax paid is zero. (Net taxable estate refers to the value of the estate on the decedent’s date of death, after expenses of administration and deductions.)

However, those higher exemptions are now at risk. The the stipulations under the current tax law, with its high estate and gift tax exemption, will “sunset” (i.e. end) on December 31, 2025. Starting January 2026, the exemption will return to the lower $5.49 million, adjusted for inflation (around $6 million).

This makes it is increasingly important to meet with business and estate planning attorneys now to protect your assets from unnecessary tax exposure in the future.

Here is an example of the significance of this change. If a person were to die in 2023 with a net estate of less than $12.92 million, there would be $0 tax due on the estate and a full step-up in tax basis on all assets to the value on the decedent’s date of death. But, after December 31, 2025 when the lower threshold goes into effect, if a person were to die with an estate of $12.92 million, the exemption amount would be roughly $6 million, leaving the remaining $5.7 million exposed and TAXABLE at the current, roughly 40 percent effective tax rate. This change results in additional estate taxes of roughly $2.2 million paid to the IRS (compared to $0 today).

Now is the time to schedule time with the team at Wegman Hessler Valore (including Nathan Hessler, Lawrence Crowther, Rachel E. Lyons, among others) to review your estate plans, corporate documents, ownership agreements, and succession plans. We can help you take full advantage of the current higher exemption amounts before they expire to better protect your family’s wealth.

Schedule time with us by calling (216) 642-3342.

Wegman Hessler Valore specializes in business law for business leaders, applying legal discipline to solve business problems to help leaders run smarter. For over 50 years, this Cleveland law firm has provided full-service strategic legal counsel for closely held businesses, corporations, and individuals. Practice areas include: business law; litigation; corporate governance; estate planning and wealth protection; intellectual property; family law for business owners; HR and employee matters; commercial real estate; business acquisition, and more. Get in touch to learn more.

Visit wegmanlaw.com or call us at (216) 642-3342.

Copyright © Wegman Hessler Valore. This information is for educational purposes. It does not reflect an attorney-client relationship with the author(s) or the firm. This information should not be used as a substitute for professional legal advice in specific situations.