Wealth Transfer Opportunities That May Pass You By!

Jul 19, 2023

By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
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As we continue the summer savings series, wealth transfer opportunities abound—especially for individuals concerned about federal estate tax. The current federal transfer tax exclusion is $12.92 million, which means that you will not face a federal estate or gift tax unless you transfer more than that amount. This is the largest exclusion in the history of the estate/gift (a.k.a. “transfer”) tax.

However, this large exclusion is slated to revert to $5 million, indexed for inflation, on January 1, 2026. There is a possibility that Congress could change the law, but as written, the exclusion reverts automatically in 2026. Consequently, many individuals who are concerned about transfer tax now—or who may be facing the tax when the reversion occurs—are acting now.

One solution is annual gifting. Under the current law, everyone has the right to make gifts annually of up to $17,000 per recipient per year with no federal gift tax liability, with this amount indexed for inflation annually. You can gift this amount to any number of people, regardless of their relationship to you, and none of the gifts will be taxable. Married couples can double this gift, meaning you can gift $34,000 per beneficiary transfer tax free.

Annual gifting limits of $17,000 for those worried about federal estate tax liabilities might not seem like enough to make a dent in your tax bill. However, consider that if you gifted $17,000 a year for 20 years and those assets received an annual 5% rate of return, your beneficiaries would have over $562,000—all of which would be outside your estate for estate tax purposes. You can even make these gifts to specially drafted trusts, which will allow you to stipulate how and when your loved one can benefit from the gifted assets.

That said, unfettered annual gifting may be on the chopping block as well. In the recent Green Book, which is President Biden’s proposal for the 2024 budget, it was proposed that the $17,000 annual gift limit remain, but that any one taxpayer could not gift more than $50,000 in total per tax year. In other words, if you planned on gifting $17,000 to four individuals (totaling $68,000), this proposal would make any gifts above $50,000 taxable (or $18,000 of your $68,000 gift). This proposal also would severely limit the amount one could gift annually and could destroy planning techniques like Irrevocable Life Insurance Trusts that are designed to receive large annual gifts. It’s important to note, though, that the Green Book is only a proposal, and currently there is no pending legislation to implement this change.

In short, the current law allows for unprecedented wealth transfer strategies. We know also that something will be changing by 2026. Either the transfer tax exclusion will revert to $5 million (indexed for inflation) as scheduled, or Congress may take action to extend or modify the exclusion sometime between now and 2026. And while the Green Book proposal seems unlikely in the near future, it represents at least some possible proposals of how gifting could change. The time to act may be now!

While we have covered just a few gifting strategies here, there are dozens of techniques that may be right for you. Accordingly, work with your tax and legal advisors and your Benjamin F. Edwards financial advisor to see whether gifting may help you meet your legacy and tax planning goals.


IMPORTANT DISCLOSURES:  The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.