Introduction: Anticipating Changes in the Applicable Exclusion Amount (AEA)

In the ever-evolving landscape of estate and gift tax planning, staying ahead of legislative changes is crucial for affluent individuals and families. The Tax Cuts and Jobs Act (TCJA) of 2017 brought a substantial increase in the lifetime federal estate and gift tax exemption, known as the Applicable Exclusion Amount (AEA). However, this windfall is on the brink of change, with the AEA set to undergo a substantial reduction at the end of 2025. In this blog post, we’ll delve into the pending AEA changes, their implications, and why timely planning is paramount.

Understanding the AEA Changes

Under the TCJA, the Applicable Exclusion Amount was effectively doubled beginning in 2018. Prior to 2018, the amount that an individual could exempt from estate and gift taxes during his or her lifetime was $5,490,000. However, under the TCJA the Applicable Exclusion Amount was effectively doubled beginning in 2018 to $11,180,000 per person. After consideration of the annual adjustments for inflation since then, as of 2024, the AEA stands at an impressive $13,610,000 per individual ($27,220,000 combined for married couples) and is slated to increase again in 2025 given this year’s expected inflation rates. This enhanced exemption provides a unique window of opportunity for affluent individuals and families to optimize their transfer of wealth to the next generation with little or no estate or gift taxes.

However, the current provisions of the TCJA include a “sunset” clause, scheduled for December 31, 2025. After this date, the AEA in effect at that time is set to be effectively cut in half, posing a potential challenge for those seeking to maximize their wealth preservation and transfer.

Why Timely Planning Matters

1. Seizing the Opportunity: The impending sunset of the enhanced AEA emphasizes the urgency for affluent Las Vegas families to act promptly. The current enhanced AEA amount is a “use it or lose it” proposition – if the increased AEA is not fully used for planning before December 31, 2025, then it will effectively disappear at that time and estates will be subject to higher estate and gift taxes to engage in the same type of planning. Thus, engaging in advanced estate and gift tax planning now allows individuals to capitalize on the current favorable exemption rates before they diminish.
2. Preserving Family Wealth: Most clients want to maximize the wealth they leave for their families, and minimize the amount that is paid to Uncle Sam. As such, timely planning provides a unique chance to shield family wealth from unnecessary and avoidable tax burdens. Crafting a comprehensive strategy tailored to your unique situation can ensure a smooth transfer of the maximum assets for the benefit of your intended beneficiaries, and minimize the amount of gift and estate tax liabilities for future generations.
3. Adapting to Legislative Uncertainty: The federal legislative landscape is always subject to change, and the pending AEA reduction adds an element of uncertainty – we don’t know if the TCJA provisions will be legislatively extended or simply allowed to “sunset” as intended. By taking proactive steps now, individuals can take current advantage of the known estate and gift tax laws with certainty and clarity to establish a solid foundation for their estate plans, and avoid the uncertainty of having to navigate through potential future tax law changes.

How Stone Law Offices, Ltd. Can Help

Stone Law Offices, Ltd. specializes in advanced estate and gift tax planning, with a proven track record of assisting affluent families in optimizing their wealth transfer strategies. As part of our initiative to educate about the impact of proper and timely planning, we offer personalized consultations to both existing and new clients.

1. Comprehensive Assessments: Our Las Vegas tax planning team conducts thorough assessments of your unique financial situation to determine the client’s projected estate tax liability if no planning is implemented, and then exploring opportunities to leverage the enhanced AEA to your advantage.
2. Tailored Strategies: Once you know your “baseline” exposure to estate taxes, we design personalized estate plans that align with your goals, ensuring that your wealth is transferred efficiently and effectively, with the substantial reduction or elimination of estate taxes, and while also considering multi-generational family governance and asset protection.
3. Collaborative Approach: At Stone Law Offices, we believe in a collaborative approach, working closely with you and your entire trusted advisor team to both design an integrated estate plan, and then implement with excellence, in every engagement.

Conclusion

The impending changes to the AEA present a time-sensitive opportunity for affluent Las Vegas individuals and families to enhance their wealth preservation strategies. By taking proactive steps now, you can navigate the evolving tax landscape and secure a prosperous financial future for generations to come. To learn more about our advanced estate and gift tax planning services, schedule a complimentary consultation with Stone Law Offices, Ltd. today. Act now to unlock the full potential of your wealth preservation journey.