Transferring and gifting assets during your lifetime are a big part of estate planning strategies. A lot of people don’t realize there are laws regarding how much one can transfer per year and their lifetime before they are taxed on the amount transferred. For example, you can only give $16,000 to another person before you have to file a federal gift tax return(Form 709). These rules are put in place to prevent someone from escaping the many taxes an estate faces upon the death of the owner of the assets. Yes, the government wants to tax your already taxed assets.

Luckily, the government provided a bit of relief for individuals with what is called the gift and estate lifetime exemption. Currently, the exemption allows individuals to transfer up to $12.06 million dollars in assets before having to pay an estate tax on any amount exceeding the allowance. Another perk with this exemption is that if you are married you can share the unused portion of this exemption with your spouse for a combined $24.12 million in lifetime exemptions. Be aware that this is just on the federal level. You will have to check with your state to see if they impose their own gift and estate tax and if they have any exemptions.  In most cases, individuals and married folks don’t have this much in assets, but it is still an important number to know especially if you plan on selling your business for a large sum.

Unfortunately, not a all sunsets are the ones we want to see.

There is a high likelihood that this large exemption amount will be going away at the end of 2025. The $12.06 million will drop down to about $6.2 million based on some assumptions. And to put the cherry on top, the IRS will most likely will raise the maximum estate tax rate from 40% to 45%. This means that time is of the essence. There are a number of strategies we are able to use right now to use up the current exemption before it sunsets.

The key is to transfer the assets away from the original owner into a vehicle that removes the original owner’s interest in the assets. BUT, you can have those assets continue to benefit the original owner in the form of income. For example, you can set up an irrevocable trust that removes the total interest from the original owner and have it benefit a family member or a charity. At the same time this trust can continue to pay income back to the original owner so the original owner can still enjoy what those assets yield during his or her lifetime and utilize the full $12.06 million lifetime exemption. Don’t worry, the IRS won’t take back the exemption once it sunsets. They promised!

Waiting to establish a relationship with an estate planning attorney and financial planner could prove to be a costly mistake for you and your family. These strategies are not DIY friendly due to the amount of moving parts and rules that need to be followed in order to stay in compliance with the government. If you did this yourself and forgot one simple rule the entire amount could end up being includable in your estate and end up costing your family a lot of money and waste all of your effort.

Ryan Kaysen is a financial planner at Integritas Financial who works with a network of estate planning attorneys to help clients find the right strategy for their situation. Click this link to set up a time to discuss what it takes to make a plan.

Fiduciary Mission

At Integritas Financial, we are committed to providing fee-only, fiduciary financial planning services that are tailored to the unique needs of young professionals, particularly millennials. Our experienced planners work with you to develop customized financial plans that address key areas such as estate planning, trusts and wills, retirement, workplace benefits, education funding, student debt, and buying a house.

We believe in transparent, client-focused service that puts your financial goals at the center of everything we do. As a fiduciary firm, we are dedicated to acting in your best interests, and we never sell products that charge commissions to clients.

Our goal is to help you achieve a stable and prosperous financial future by providing comprehensive financial planning services that are tailored to your individual needs. Whether you're just starting out in your career or you're already well-established, we can help you navigate the complexities of financial planning and create a roadmap for success.

Ryan@if-money.com