How To Avoid The Lowering Lifetime Gift Tax Exemption Cap

On Behalf of Ezell Law Firm, LLC

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Jan 30, 2024

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Estate Planning

Estate planning in Louisiana can be difficult. There are many laws to consider in how you decide to distribute your estate to your heirs. What can make it even worse is the fact that laws continue to change. Changes in the legal code or legal precedent can have a significant impact on how your estate is taxed or distributed to heirs. You should keep this in mind when planning your estate.

The 2026 gift tax law changes

One substantial change everyone who owns an estate should prepare for is the one that is taking effect after January 1, 2026. After this date, lifetime gift tax exemptions will be slashed in half. In the year 2024, this exemption will apply to people who were given less than $13.61 million. However, by the year 2026, this exemption will be lowered to about $7 million. Unless Congress changes the law, estate holders should consider this as a certainty and adjust their estate plans accordingly.

Available countermeasures

If you have massive assets in your estate you wish to give away to heirs, you have some options for dealing with this upcoming change in the law. This includes:

• Setting up a tax credit shelter trust
• Having your spouse give the money
• Giving the money for medical expenses
• Donating the money for educational expenses
• Distributing appreciated assets

Placing the assets into a credit shelter trust will help protect those assets from both the gift and estate taxes. Similarly, money that is passed on for medical and education expenses is excluded from these limits. The lifetime exemption is also only for the individual. Spouses are not tallied together, and each has their own limit. Assets that have depreciated in market value can be given for less than what you bought them.

While these aren’t perfect solutions, they are probably still better than having to pay the estate tax and your heirs having to pay the inheritance tax. Consider your options while planning your estate.