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The lifetime gift tax exemption is a crucial aspect of estate planning. It allows individuals to transfer assets to others during their lifetime without incurring gift taxes. This exemption is adjusted periodically to keep pace with inflation, and the next adjustment is set to take effect in 2025.
The lifetime gift tax exemption is the total amount of money or property that an individual can give away during their lifetime without paying gift taxes. This exemption is separate from the estate tax exemption, which applies to assets transferred upon death.
For 2025 and 2025, the lifetime gift tax exemption is $12.92 million per individual. This means that individuals can give away up to $12.92 million in cash, property, or other assets during their lifetime without triggering any gift taxes.
The Tax Cuts and Jobs Act of 2017 temporarily doubled the lifetime gift tax exemption to $11.7 million per individual. However, this increase is set to expire on December 31, 2025. As a result, the lifetime gift tax exemption will revert to its pre-2018 level of $5 million per individual in 2026.
The reduction in the lifetime gift tax exemption in 2026 will have significant implications for estate planning. Individuals who have already used a portion of their increased exemption may need to consider additional strategies to reduce their taxable estate.
Individuals who are approaching the lifetime gift tax exemption should consider taking steps to minimize the impact of the 2025 reduction. Some strategies include:
The 2025 lifetime gift tax exemption reduction will have a significant impact on estate planning. Individuals who are approaching the current lifetime gift tax exemption should consider taking steps to minimize the impact of the reduction. By utilizing available strategies, such as making annual exclusion gifts, using the marital deduction, and establishing trusts, individuals can reduce their overall tax liability and ensure that their assets are transferred to their desired beneficiaries in a tax-efficient manner.
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