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The Return of the Estate Tax for $5.6M+ Estates
The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted on December 22, 2017. Perhaps the most impactful change of TCJA was the doubling of the exemption for the federal estate and gift tax. In 2023 the exemption amount is $12,920,000 ($25,840,000 for married couples). This means that any estate less than this amount will not be subject to the 40% federal estate tax.
On January 1, 2026, the federal estate- and gift-tax exemption is set to return to what it was before TCJA, $5,600,000 ($11,200,000 for married couples). Therefore, if your estate is larger than the upcoming "new" exemption amount, there are a few things you can do now to begin to mitigate the future tax bill.
Strategies to avoid future taxes by reducing the size of your estate:
- Large gifts to loved ones. The IRS has issued guidance that it will not "claw back" any gifts to loved ones and charity made during the period when TCJA was law. Therefore, you can make gifts up to the current exemption amount ($12,920,000 in 2023).
- $17,000 annual gift-tax exclusion. You may give up to $17,000 to as many children or other loved ones as you like. This amount will not be considered a taxable gift, and it will not reduce your exemption amount. If you are married, both spouses can give the same amount, so you can give up to $34,000 per recipient.
Charitable Gift Strategies
- Charitable bequest. Leave assets to Florida International University in your will thereby both reducing the size of your estate and helping our mission long into the future.
- Retirement-plan beneficiary. Beneficiary designations pass outside of your estate. Make Florida International University a beneficiary of your retirement plan, and we will receive 100% of what you designate because, as a tax-exempt organization, we are not taxed on the gift as an individual would be.
- Charitable remainder trust (CRT). The CRT will pay you or your loved ones income for a term of years, at the end of which the remaining assets will go to us. You will get a deduction for the eventual remaining value of the trust that we will receive, and the same amount will be excluded from your estate.
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