Time To Re-Evaluate Your Wealth Protection, Preservation, And Transfer (Gifting) Strategies?

Do you know about the Tax Cuts and Jobs Act (TCJA) that is scheduled to end in 2025, and how the changes may impact your wealth protection, preservation, and transfer strategy??

In the chart below, you'll see that in 2018 the estate and gift tax limit was raised to $11M from $5.5M (and double for married couples).

From 2026, the limits are scheduled to drop back down to the 2017 limits, adjusted for inflation, which will be somewhere around $6-7M per person.

This amount refers to the total amount of "wealth" that you can GIFT (give to another individual without a fair market value consideration in return - essentially, a sale) to another individual in your life, without incurring a "gift tax".

For any amount over that limit, you (the donor) are required to pay a gift tax that ranges from 20-40%.

The Impact of This Change:

During your life:

If you GIFT more than the allowed amount during your life, you have to cough up gift taxes now. The annual exclusion limit refers to the amount you can gift per year, without facing gift taxes.

After your death:

If the total fair market value of your estate is over the exclusion amount, your estate will incur an "estate tax" on the excess, which is currently 40%. In addition, some states have an inheritance tax, which the beneficiaries have to pay.

So - think about that:

If you're planning to earn a "ton of money" over the next few years, or you've already built a sizable portfolio that is over that gift tax limit, close to 40% of the excess could be a "GIFT" to the government in the form of Gift or Estate taxes.

Maybe that's okay with you, since the government uses that for all kinds of things that we get to enjoy, and for charitable purposes. That's quite all right!

But, if you rather designate and dictate HOW your wealth should be gifted (transferred) to your family, and perhaps even gifting it to a charity or dedicating it for charitable purposes (through a foundation), versus gifting it to the government in the form of gift or estate taxes - then these changes will certainly impact you, if your net worth exceeds that limit.

Now, if your current portfolio does not cross that limit, then the lifetime gift exclusion may not be relevant.

However, the annual limit may be relevant, especially if you are gifting family members with cash or assets that are over the annual gift limit ($17K this year). Any gifts over the annual exclusion to an individual is subject to the gift tax rules.

However, there are several exceptions, exclusions, and strategies to circumvent the gift tax rules, legally and ethically, which I'll focus on in another post, but at a core level - these changes could directly impact your wealth transfer and gifting strategies, both during your life and after your death!

One last comment here -

Assets that are a part of your "revocable living trust" or "captured in your will" ARE a part of your "estate" at the time of your death!

Re-read that - assets that you control are a part of your estate at the time of your death and are subject to these gift and estate tax rules.

These assets may be removed from your estate that might be subject to probate proceedings, but they are still a part of your estate as far as gift and estate tax rules are concerned.

The FMV of your estate consists of everything that you "OWN" (based on control) at the time of your death! This includes cash, stocks, retirement accounts, crypto, investments, real estate, shares in a business, etc.

A GIFT, by contrast, is something that you have "parted" control and dominion over. If you GIFT (transfer or convey) assets into an irrevocable trust (with an independent trustee that holds title), and you've given up 95% of more of the control and interest in that property (cash included) - that's a gift.

In the case of the revocable trust - you are still (presumably) enjoying the assets in question and have control over them - which is why they are NOT considered a gift and form a part of your estate at the time of your death.

All right!

That's it for this post, that's quite a bit to digest already.

Want links to dig into these topics...just ask, happy to share!

BY THE WAY - don't rely on answers given by AI on these legal topics, they are wrong and can get you in some serious trouble, including interpretations and contracts, etc.

Happy "GIFTING"!!!

Cheers,

Sid Peddinti

Disclaimer: this is not legal, tax, or financial advice - the topics discussed may or may not apply to you.