Taking the Sting Out of Death Taxes with Dylan Metzner, Jones & Keller

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High-net worth individuals have an opportunity to take advantage of high transfer tax exemptions if they act fast. Set to expire in 2026, unless Congress acts sooner, the time is now to implement strategies that make the most of the current “death tax” exemptions.

Dylan Metzner counsels individuals and families throughout the United States and internationally with their tax, estate and private wealth planning needs, guiding them through the maze of laws and practical considerations in moving each client See more +

High-net worth individuals have an opportunity to take advantage of high transfer tax exemptions if they act fast. Set to expire in 2026, unless Congress acts sooner, the time is now to implement strategies that make the most of the current “death tax” exemptions.

Dylan Metzner counsels individuals and families throughout the United States and internationally with their tax, estate and private wealth planning needs, guiding them through the maze of laws and practical considerations in moving each client closer to achieving goals and resolving outstanding issues. Reach out to Dylan at dmetzner@joneskeller.com for private wealth management guidance.

This information is not intended as legal advice. Readers should seek specific legal advice before acting with regard to the matters addressed above.

As with most hot topics, there is a lot of confusion as to death taxes so let's clarify what we know, what we do not know and how we can plan for certainties and uncertainties.

Starting with terminology, the “death tax” is a form of “transfer tax” and is formally referred to as the estate tax. Ordinary income tax and capital gains tax are both types of income tax, and the tax on receiving money in exchange for something.

Transfer taxes, on the other hand, are taxes (at a rate of 40%) on the right to transfer something without receiving anything in exchange. When would you transfer something without receiving anything in exchange? In two circumstances: first, if you make a gift to someone; and, second after you die and someone receives an inheritance from your estate.

There are three types of transfer taxes:

1. Gift tax, which applies to lifetime gifts;

2. Estate tax, a tax on the gross estate prior to bequests; and

3. Generation skipping transfer tax.

While managing all these potential taxes is part of estate planning, this discussion focuses on the first two, the gift tax and the estate tax.

Lawmakers do not tax every gift an individual makes, nor do they tax every estate. Rather, Congress sets a dollar cap for gifts that a person can make during life or bequests after death before a transfer tax will apply. This dollar cap is often referred to as the “exemption amount.”

Under current law, an individual has an exemption amount of $12.06M dollars, and married couples together have a combined exemption amount of $24.12M dollars. However, these exemption amounts will be decreased by half on January 1, 2026 (unless Congress acts sooner as it tried to do in the fall of 2021), so the time is now to implement strategies that make the most of the current death tax exemptions.

A hypothetical may better explain what all this means. Assume we have a single individual whose net worth in $20 million dollars who can either gift during their lifetime or leave as an inheritance at their death the sum total of $12M dollars.

With no taxable gifts, at death the the individual could pass approximately $12M dollars transfer tax free. The remainder of the individual’s estate ($8M) would be taxed at 40 percent, so approximately $3.2M would be paid to the IRS and the remaining $4.8M would be available for the individual’s beneficiaries.

With a taxable gift of $10M during their lifetime, $2M of exemption remains and the individual’s net worth is now revalued at $10 million. At death, the estate passes $2M to the beneficiaries free of the estate tax, $3.2M goes to the IRS and the remaining $4.8M passes to beneficiaries.

On January 1, 2026, the $12.06M ($24.12M for married couples) exemption amount will be cut in half unless Congress acts to keep the exemption at its current amount. There are strategies to take advantage of current exemption amounts. The IRS has confirmed that people who make gifts prior to a decrease in the exemption amount will not be adversely impacted when the exclusion amount is cut in half in 2026. An individual can gift $12M dollars today, and if the exemption amount reverts back to roughly $6M, they will have sheltered an additional $6M from the transfer taxes. One strategy for those who can afford to do so is to fully utilize the exemption amount before the amount gets reduce.

Second, when a gift is made the amount of the exemption used is the value of the gift the day it was made. If someone gifts an asset that will appreciate in value and that asset is currently worth $12 million dollars today, then appreciation is removed from the estate of the person who made the gift, creating opportunities for business owners who want to leave more money to their family as opposed to the IRS.

Individuals with a net worth of more than $6 million should review their current situation with an attorney who is experienced in transfer tax matters. Waiting until 2025, or to see if Congress acts prior to that time, may be too late.

Reach out to Dylan Metzner at dmetzner@joneskeller.com. See less -

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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