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 as a result of 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 use 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.

One of the silver linings in the recent economic volatility was that it showed how valuations in such situations may be so depressed that you can give at lower values.

By making gifts now, a person can “lock in” an 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. Without new legislation, the lifetime exemption will revert to the prior $5,000,000 level, adjusted for inflation, on January 1, 2026.

Here we have included four tips for high-net-worth individuals who want 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 when the beneficiary is still alive.

Trusts can offer beneficiaries some protection from creditors—keeping assets separate from a divorcing spouse, for instance. Trusts can also help beneficiaries possibly avoid 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 using the additional lifetime gift-tax exemption.

Another benefit of using grantor trusts is that you are permitted to “swap” assets with the trust without recognizing gain as long as the substituted assets are of equivalent value; this gives you flexibility and can be a useful tool in terms of managing your income tax basis (in other words, it allows you to substitute any low basis trust assets for high basis assets before you die).

2. Give assets that will remain in the family. With lifetime gifts, you forgo a step-up in basis of appreciated assets that would otherwise occur upon your death. The step-up would reduce or eliminate capital gains exposure when the assets are sold later. 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 forgone basis step-up is of less consequence, in present value terms, if the sale will be made many years after your death and the date for paying estate taxes.

By transferring a portion of certain family assets during your 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 (in a business or real property, for instance) are valued, they are typically eligible for generous valuation discounts given that the holder of a less than majority interest will lack control over those assets and fractional interests are generally less marketable.

First « 1 2 » Next