The historically high lifetime exemption amount for gift, estate and generation-skipping transfer taxes increased from $11,400,000 to $11,580,000 per person this year due to inflation indexing. Individuals who had used up their lifetime exemption as of last year may choose to make “topping up” gifts of $180,000. Those of considerable means who have not yet made gifts to utilize their lifetime exemption may wish to at least begin to think about lifetime gift strategies. Some will find this to be a good time to devote to planning. In addition, a silver lining to the current economic volatility is that valuations may be depressed such that you can give more now at lower values.

By making gifts now, a person can “lock in” exemption that may shrink in 2026 or sooner. Treasury Regulations issued last year confirm that gifts made on or before December 31, 2025 will not be “clawed back” into a person’s taxable estate at death, regardless of whether the lifetime exemption amount subsequently decreases. Absent new legislation, the lifetime exemption will revert to the prior $5,000,000 level, adjusted for inflation, on January 1, 2026.

Set forth below are four tips for high-net-worth individuals desiring to capitalize on the record-high lifetime exemptions in what may be a “use it or lose it” scenario.

1. Make gifts in trust. By making gifts to your loved ones in trust you can retain some degree of control over the gifted assets and allow for flexibility to adapt to changed circumstances. An independent Trust Protector can be authorized to add or remove beneficiaries, for example. A beneficiary can be granted the power to change the disposition of trust assets remaining at the beneficiary’s death (within any constraints provided by the grantor) or to redirect assets to charity during life.

The trust structure can offer beneficiaries some protection from creditors, including by way of keeping assets clearly separate from a divorcing spouse. Trusts also enable potential avoidance of estate and generation-skipping transfer taxes when the assets pass to the next generation.

If you make gifts to a grantor-type trust, you remain responsible for the payment of income taxes associated with the gifted assets, unless or until you choose to “turn off” the grantor trust status. The payment of income tax on behalf of the trust enables you to make further tax-free “gifts” to the trust (of the income tax) without utilizing additional lifetime gift tax exemption.

Another benefit of using grantor trusts is that you are permitted to substitute assets of equivalent value in exchange for the trust assets without recognition of gain, which enhances flexibility and can be a useful tool in terms of managing income tax basis (e.g., substituting any low basis trust assets for high basis assets before death).

2. Give assets that will remain in the family. With lifetime gifts, you forego a step-up in basis of appreciated assets that would otherwise occur upon your death, which step-up would reduce or eliminate capital gains exposure on a subsequent sale of those assets.  This is not of consequence, however, if the transferred assets are not intended to be sold and will instead remain in the family. For this reason, it may make sense to give assets such as a family vacation property that your children have expressed interest in retaining, or shares of a business that is intended to remain family-owned.

Even if the gifted assets may one day be sold, the foregone basis step-up is of less consequence, in present value terms, if sale would take place many years after your death and the date for payment of estate tax.

By transferring a portion of certain family assets during life, you can ensure that your estate includes less than a 100% interest in those assets at your death, which is advantageous from a valuation perspective.  When fractional interests are valued, they are typically eligible for generous discounts for lack of control and lack of marketability.

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