Opinions about the expiration of the estate tax limit in 2025

[tricky88]

There's currently a tax exemption of about $12 million on estates. But that law is going to expire in 2025, and the exemption will revert back to what it was; $5.5 million plus inflation adjustment. More info here:

https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting


For those of you who are familiar with this, what are your predictions for what might happen in 2025? Congress could make the higher amount permanent, they could let it go back to what it was, or they could do something in between....


Someone I know was told by a lawyer that they should make several expensive and complex moves in their trust estate plan now in case it reverts to the lower amount. (It seems the elder patriarch is in the $5.5 - $12 range)


I have a difficult time believing Congress will let this expire entirely, because if they can agree on something, it is helping wealthy people.

I'm curious of the predictions of this insightful group.

 

[tricky88]

This article explains my friend's situation better. The lawyer is recommending a credit shelter trust as the spouse just passed away.

https://www.fidelity.com/learning-center/wealth-management-insights/TCJA-sunset-strategies

 

[ERD50]

There's currently a tax exemption of about $12 million on estates. But that law is going to expire in 2025, and the exemption will revert back to what it was; $5.5 million plus inflation adjustment. ... .

Does anyone know, does that mean adjusted for inflation from 2017 ( when the Tax Cuts and Jobs Act was enacted), or just moving forward from 2025? If from 2017, it's up to ~ $6.7M now, plus whatever the next 2 years brings. And most of our portfolios have shrunk recently, even before inflation!

I dunno what will happen. Sunset is automatic, so if the Senate/House can't agree on a change (often the case), we'll get that. I guess I'll stop there.


edit/add: I don't see the point of your friend doing anything now, if the amount changes, change the estate then with known info. They aren't going to 'grandfather' anything done earlier, so what's the point?

-ERD50

 

[MarieIG]

This article explains my friend's situation better. The lawyer is recommending a credit shelter trust as the spouse just passed away.

https://www.fidelity.com/learning-center/wealth-management-insights/TCJA-sunset-strategies

If the spouse just passed away, they should look into filing an estate tax return (whether or not taxes are due) to claim the portability exemption.

 

[marko]

I don’t see Congress voting to extend this in the current environment.

Send in the lawyers, accountants, trusts et. al. and in the end, the government won't get a penny more than before.

 

[Out-to-Lunch]

Could be worse: Remember the "Throw momma from the train" year of 2010?

https://www.taxpolicycenter.org/taxvox/throw-momma-train

(I don't actually remember how this shook out in the end.)

 

[tricky88]

If the spouse just passed away, they should look into filing an estate tax return (whether or not taxes are due) to claim the portability exemption.

Marie - Yes, I'm told this was given as an option. Do you know what the downsides are to doing this?
And from what I have read, the inflation index is from the earlier year, so yes, it's going to be significantly more than $5.5 million right now.

 

[RunningBum]

Does anyone know, does that mean adjusted for inflation from 2017 ( when the Tax Cuts and Jobs Act was enacted), or just moving forward from 2025? If from 2017, it's up to ~ $6.7M now, plus whatever the next 2 years brings. And most of our portfolios have shrunk recently, even before inflation!

I looked into this awhile back and that was my understanding, that it would consider inflation from 2017.

It's also my understand that if I gifted $1M over the yearly exemption, it wouldn't help because grandfathering only comes into play if I had previously gifted over the new estate exemption amount. I'm not sure of that though.

 

[cathy63]

If the spouse just passed away, they should look into filing an estate tax return (whether or not taxes are due) to claim the portability exemption.

Yes, this. My understanding is that the first spouse's $12.92M exemption (assuming death was in 2023) is added to whatever the surviving spouse's exemption will be as long as the survivor filed the claim for portability. The IRS has said the ported exemption won't be reduced, so even if the lower limit goes back into effect, and say it's $7M by then with inflation, that would give a $19.92M exemption for the survivor's estate.

 

[MarieIG]

Marie - Yes, I'm told this was given as an option. Do you know what the downsides are to doing this?
And from what I have read, the inflation index is from the earlier year, so yes, it's going to be significantly more than $5.5 million right now.

Very, very little downside, i.e. you do a tax return and check off a box. It gives you an option to use it.

https://www.irs.gov/businesses/smal...ed/frequently-asked-questions-on-estate-taxes

I recall seeing a video on this. If you want, I'll look for it.

 

[audreyh1]

The expiration is after 2025.

 

[RobbieB]

Wouldn't have mattered to me or anyone I know.

 

[jebmke]

I have a firm practice against predicting future tax changes.

 

[luckydude]

Marie - Yes, I'm told this was given as an option. Do you know what the downsides are to doing this?
And from what I have read, the inflation index is from the earlier year, so yes, it's going to be significantly more than $5.5 million right now.

There's no downside to filing Form 706 to claim unused portion of deceased's life time estate tax exemption amount and make it portable (i.e., save it) for the surviving spouse to use.

 

[luckydude]

There's currently a tax exemption of about $12 million on estates. But that law is going to expire in 2025, and the exemption will revert back to what it was; $5.5 million plus inflation adjustment. More info here:

https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting


For those of you who are familiar with this, what are your predictions for what might happen in 2025? Congress could make the higher amount permanent, they could let it go back to what it was, or they could do something in between....


Someone I know was told by a lawyer that they should make several expensive and complex moves in their trust estate plan now in case it reverts to the lower amount. (It seems the elder patriarch is in the $5.5 - $12 range)


I have a difficult time believing Congress will let this expire entirely, because if they can agree on something, it is helping wealthy people.

I'm curious of the predictions of this insightful group.

There's no use in predicting the future. Who knows what's going to happen. DW and I are constantly tinkering with our estate planning strategy to minimize tax bites and make sure there's an orderly transition of our assets to our heirs upon our demise, but we are resigned to our estate getting clobbered by taxes whether the exemption amount stays at the current exemption level or drop down to $5.5 million + inflation adjustment.

 

[SecondCor521]

Does anyone know, does that mean adjusted for inflation from 2017 ( when the Tax Cuts and Jobs Act was enacted), or just moving forward from 2025? If from 2017, it's up to ~ $6.7M now, plus whatever the next 2 years brings. And most of our portfolios have shrunk recently, even before inflation!

-ERD50

Under current law, it is increased by some inflation index every year. On 1/1/2026, there is a temporary doubling that expires, so in 2026 it will be the 2025 number increased by inflation then divided by 2.

Unless they change the law, which...who knows.

 

[SecondCor521]

Marie - Yes, I'm told this was given as an option. Do you know what the downsides are to doing this?
And from what I have read, the inflation index is from the earlier year, so yes, it's going to be significantly more than $5.5 million right now.

You have to complete a Form 706 Estate tax return and elect portability. The portability election is pretty straightforward, but my understanding is you have to complete the rest of the applicable parts of the return.

Estate tax returns are complicated and most people (including me) probably couldn't fill one out correctly. A Form 1040 is two pages long; the basic 706 is 29 pages long. So you might have to pay a few hundred dollars or more to a CPA or estate attorney to complete the return for you.

Still very well worth it in certain cases, but not as simple as a check box.

If you want to look, the term to search for is "DSUE" at https://www.irs.gov/pub/irs-pdf/f706.pdf

 

[Exchme]

Does anyone know, does that mean adjusted for inflation from 2017 ( when the Tax Cuts and Jobs Act was enacted), or just moving forward from 2025? If from 2017, it's up to ~ $6.7M now, plus whatever the next 2 years brings. And most of our portfolios have shrunk recently, even before inflation!

I dunno what will happen. Sunset is automatic, so if the Senate/House can't agree on a change (often the case), we'll get that. I guess I'll stop there.


edit/add: I don't see the point of your friend doing anything now, if the amount changes, change the estate then with known info. They aren't going to 'grandfather' anything done earlier, so what's the point?

-ERD50

Yes, adjusted from 2017. The TCJA doubled the estate exemption, so an expiring TCJA will cut it in half.

No way to tell what future lawmakers will do. Our case is in the "we could go over the lower exemption after TCJA expires if the markets are OK going forward" category, so we decided to use the annual gift exemption and started giving to our kids a couple years ago, plus we are a little more aggressive with Roth Conversions than we otherwise might have been. If you are pretty sure you will be over the exempt amount, then you really should see an estate planner.

 

[luckydude]

You have to complete a Form 706 Estate tax return and elect portability. The portability election is pretty straightforward, but my understanding is you have to complete the rest of the applicable parts of the return.

Estate tax returns are complicated and most people (including me) probably couldn't fill one out correctly. A Form 1040 is two pages long; the basic 706 is 29 pages long. So you might have to pay a few hundred dollars or more to a CPA or estate attorney to complete the return for you.

Still very well worth it in certain cases, but not as simple as a check box.

If you want to look, the term to search for is "DSUE" at https://www.irs.gov/pub/irs-pdf/f706.pdf

+1 on hiring a qualified estate attorney who specializes in this to file your estate tax return.

When DD passed, DM went to her trusty CPA (against my advice) to file DD's estate tax return and the CPA f***ed it up big-time. She finally took my advice and hired a qualified estate attorney to get it refiled. When it comes to anything related to estate planning and estate tax return, never go cheap and always hire a pro.

 

[tricky88]

Thanks all for the info and advice. I have shown this thread to my friend and it has clarified some things for her. The surviving spouse does have an estate attorney. but she knew of my interest in these things and that I had a wealth of savvy people to ask about this, and I was happy to learn more about it myself - thank you again.