It won’t always be Six O’clock. The “passage of time” is inevitable and one’s “destination”, if not planned, will be decided for you. Relative to the Tax Cuts and Jobs Act of 2017, time is slipping away. Unless addressed by Congress, on January 1, 2026, the current relatively high exemption levels of estate, gift, and generation skipping transfer tax (collectively, “death tax”) will disappear like the Cheshire Cat, leaving taxpayers to manage the transfer of their net worth with the considerably lower historic 2017 exemption levels ($5.49MM adjusted for inflation). And, one’s destination in light of the receding exemption, that should dictate your tax planning road map. To quote Cheshire Cat, “[i]f you don’t know where you are going, any road will get you there.”
By way of background, since 2017, the death tax exemptions have been increasing with inflation to the current $13.61MM per person level. That is a lot of exemption. But on January 1, 2026, those higher exemption levels will disappear and revert to historic levels, roughly one-half of the current levels. Experts are thinking in the $7.0MM range per person. Unless you act quickly you will be late for that “very important date”. The window of planning opportunity to secure use of the higher exemption rates is quickly closing! Time is ticking.
As to Alice’s destination question, “[w]ould you tell me, please, which way I ought to go from here” and the Cheshire Cat’s response, “[t]hat depends a good deal on where you want to get to”, this is as valid today in tax planning discussions as it has ever been.
There are many planning opportunities that can be implemented to secure the current higher death tax exemptions, but which is most appropriate depends upon your decided destination. Running the numbers will be important in every situation. One thing is sure, on January 1, 2026 it will be too late, taxpayers will fall down the rabbit hole of 40% death tax rates on lower levels of net worth and see that the Cheshire Cat of planning opportunities has disappeared. Now is the time to act, sooner the better. Fairfarren.
If you have questions or would like to discuss the effects of the receding estate, gift, and generation skipping transfer tax exemptions, please feel free to give either of our estate planning lawyers, Chas. B. Jones or Megan E. Easter, a call.