Will the sun set on generous estate and gift tax exemptions in 2026?

Now is a good time to review your estate and gifting plans.

High-net-worth individuals and families who benefit from the historically high federal estate and gift tax exemption may soon see it reduced by half. Favorable increases in the estate and gift tax exemption created by the Tax Cuts and Jobs Act of 2017 (TCJA) are scheduled to sunset at the end of 2025 along with other changes the law made, including an increase in the standard deduction and the charitable giving deduction, as well as reductions in individual income tax rates.

With so many tax provisions scheduled to revert back to pre-TCJA levels in under two years, consider moves you might need to make to minimize your tax burden and support your financial goals.

How the lifetime estate and gift tax exemption changed under the TCJA

The TCJA went into effect on January 1, 2018, and doubled the estate and gift tax exemption from $5 million to $10 million for individuals and $10 million to $20 million for joint filers. This exemption is indexed for inflation, so by 2023 it had risen to $12.92 million per person and $25.84 million per married couple.

The lifetime exemption amounts for estate and gift taxes are the same, which is why they’re discussed together. In addition to the estate and gift tax exemption amounts, you may make annual gifts up to $18,000 (per receiver) in 2024 without utilizing any of your gift tax exemption.

The estate tax exemption in 2024 is $13.61 million for individuals and $27.22 million for couples. But because the TCJA sunsets on December 31, 2025, the estate tax exemption in 2026 will fall back to $5 million for individuals and $10 million for couples, indexed for inflation, unless Congress acts to extend the provisions.

If Congress doesn't take any action, the exemption for federal estate tax will be reduced by half after 2025.

How the exemption changes work

For example: A married couple with $25.84 million in assets in 2023 gifted their child $17,000 that year. Because the gift amount didn’t exceed the gift tax exemption for 2023, they didn’t have to pay gift taxes on that gift. But they also made a second gift that year to their child of $25,823,000 – the remaining amount of their lifetime estate and gift tax exemption (as of 2023).

Did the couple have to pay taxes on that generous second gift? No. Even though the second gift is taxable, the IRS applies a credit against the gift tax based on the total estate and gift tax exemption. In other words, the IRS in effect says to such a couple, “You don’t need to pay now for that taxable gift; we’ll settle up with you on all your lifetime gifts and estate taxes when you die.”

Now imagine that this couple passes away in 2024. The TCJA is still in effect, and the couple’s estate ends up paying nothing in gift or estate taxes for either the first or second gift because those two gifts equal $25.84 million, which is less than the 2024 lifetime gift and estate tax exemption of $27.22 million. If at the time of their death the couple’s remaining assets are worth $1.5 million, their estate also wouldn’t need to pay taxes on $1.38 million of those assets because they are covered under the remainder of the $27.22 million exemption.

But suppose this couple instead dies in February of 2026, after the TCJA has ended, and Congress hasn’t acted to extend the provisions. Let’s assume that the indexed gift and estate tax exemption for 2026 is $10.4 million.

Does the expiration of the TCJA mean the couple now has to pay taxes on the amount of their second gift that is above $10.4 million? No. The IRS issued a rule in 2019, clarifying that it won’t “claw back” gifts made during the period when the TCJA was in effect. So the estate in 2026 can calculate its gift and estate tax exemption using the exemption under the TCJA.

The nuances of which particular year of the exemption would apply (whether 2023 or 2025) would be best to discuss with your financial advisor. But the larger point is this: If you act before 2026, you can take advantage of the TCJA to lock in its higher lifetime gift and estate tax exemption even if you expect to live long past December 31, 2025.

Gifts and other strategies

Outright gifts directly to your loved ones are not your only option for taking advantage of the high lifetime gift and estate tax exemption under the TCJA. Based on your circumstances and goals, you might consider several other strategies.

Gifts to an irrevocable trust

You could create an irrevocable trust with designated beneficiaries and distributions based on the terms you choose. Any gifts to this trust can take advantage of the TCJA lifetime gift and estate tax exemption.

Gift to a spousal lifetime access trust (SLAT)

If you’re concerned that giving large gifts directly to others or to a trust might leave you too short on funds to support yourself while you’re alive, you might want to consider a spousal lifetime access trust (SLAT). A SLAT is created by one spouse for the benefit of the other spouse. Any gifts the SLAT creator puts into the trust will be distributed to the beneficiary spouse, who can then use those distributions for joint expenses. You can also configure a SLAT so that its assets pass to your descendants upon the death of both you and the beneficiary spouse.

Gifts the donor sponsor gives to the SLAT are exempt from tax up to the donor spouse’s available exemption amount. In 2024, a donor could gift $13.61 million without paying a gift tax.

While the donor won’t be taxed on contributions below the exemption amount, the beneficiary may well owe tax on distributions from the SLAT, as these are treated as taxable income. And assets distributed to the beneficiary spouse can increase their estate. That increase could be subject to the estate tax or its exemption.

Establishing other types of trusts

There are many other types of trusts that might serve your particular needs. These include dynasty trusts, irrevocable life insurance trusts, and a qualified personal residence trust. Your financial advisor can most effectively evaluate what option or combination of options will achieve your goals.

If your gifts to your SLAT will use up your gift and estate exemption, but you also have a significant life insurance policy, an irrevocable life insurance trust may be a way to prevent the life insurance policy from counting as part of your estate. That way, your beneficiaries benefit from the life insurance payout without being subject to high estate taxes.

A good time to review your estate plan

Although there’s a chance that new tax legislation may take effect between now and 2026 that extends or builds upon the TCJA provisions, it’s still advisable for families to review their estate plan with their financial advisor as soon as possible. Waiting until the latter months of 2025 might limit the strategies available to you to take advantage of the TCJA estate tax exemption provision. Even if you’re confident that the TCJA sunset won’t affect your estate plan, it’s still important to check it regularly.

Raymond James does not provide tax or legal advice. Please discuss these matters with the appropriate professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

 

Identify the connection between net worth and risk tolerance

Understanding your risk profile is an important component of managing significant wealth.

Nobody wants to financially erode the portfolio they’ve built by making risky choices at the wrong time. You spend nearly half of a lifetime working hard to prepare for a secure retirement, so no wonder it isn’t easy to convince yourself to embrace risk. As vital as wealth preservation is, especially when nearing retirement, returns are still an important consideration.

So how do you get over the risk hurdle? Research shows your financial advisor can help. Those who work with an advisor perceive potential higher-risk investments with less negativity. They’re also more apt to recognize the importance of holding thoughtfully selected risk within an investment portfolio compared with wealthy investors who don’t partner with an advisor.

But how risky is too risky when it comes to wealth preservation and generating returns for high-net-worth investors? You might be surprised.

Sometimes looking at the numbers is an exercise in perspective. Investors with significant wealth have a greater ability to absorb financial losses than others – but emotion can sometimes get in the way of seeing the broader context. An amount that may initially cause “sticker shock” may actually be a fraction of your liquidity when considering the bigger picture. Your advisor may be able to run simulations that show how your unique portfolio would react to market pullbacks or changes in interest rates. Seeing these potential outcomes can help clarify the level of risk that fits your tolerance and your investment goals – and it may turn out to be higher than you thought.

Age is less important when determining risk for investors with significant wealth. Your investment time horizon – the length of time you expect to hold an asset – is an important component of risk tolerance. Older investors typically have a shorter time horizon given their proximity to retirement and the usual need to make portfolio withdrawals at that time. However, age may have less impact on the overall risk tolerance of affluent investors whose income needs in retirement are already accounted for. If it’s unlikely you’ll need to liquidate assets in the near term to meet your spending needs, it may be appropriate to maintain a less-conservative allocation for longer.

Being too conservative can be a risk unto itself. Avoiding undue risk is always wise. However, you want to be sure to balance risk with potential return when it comes to your overall plan to outpace inflation and meet your financial goals in retirement, whether that’s supporting your grandkids’ education, giving to charitable causes or taking that once-in-a-lifetime trip. With the more complex planning needs that come with being an affluent investor, it’s important to discuss with your financial advisor an asset allocation that can help maintain your lifestyle over the long term.

Focus less on market timing and more on the timing of your life. Creating a diversified portfolio and revisiting it as your life and goals evolve is more important than any one investment decision. Your financial advisor can help you determine which opportunities provide the best potential for reward for the risk taken that aligns with your unique circumstances, life plans and goals, and provide you with the confidence not to “jump” into and out of the market at the wrong time.

More risk assets, more thoughtful rebalancing. Because private wealth individuals typically hold meaningful wealth in risk assets like equities, which can change significantly in value over time, it’s important to establish a plan with your advisor for periodically returning your portfolio to its target asset allocation. It’s also important for your advisor to see the whole financial picture; holding assets in multiple accounts without informing your advisor of your full portfolio may increase the risk of becoming overly concentrated or underexposed to certain markets. Your selected strategy will have important tax consequences, so talk through various approaches to determine the best fit.

Create a steady withdrawal strategy for retirement. Capital preservation is important to prevent income loss. You’ll still need to ensure your liquidity needs are met with a holistic income strategy. Consider the income sources you’ll have in place, which may include Social Security, pensions, annuities, dividends, bond coupons, etc., and work with your advisor to address any potential mismatch between what’ll be generated and what you’ll need to maintain your desired lifestyle as well as access capital if there is ever a need.

Confront concerns head on. One way to bring confidence to the idea of taking on risk is to simply talk about it openly. Have conversations with your financial advisor to help you understand your risk tolerance today and how risk can affect your future. When ideas and numbers become more tangible, they become more manageable. Your financial advisor can speak directly to the matters that will impact your portfolio the most but change your lifestyle the least.

Maintaining a large portfolio into and through retirement doesn’t have to mean giving up on returns and opportunities for growth, when that risk is managed thoughtfully. It may take a true understanding of your overall financial outlook, and transparent conversations with your financial advisor, to help you get there.

There is no assurance any investment strategy will be successful. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss. The process of rebalancing may result in tax consequences.

IMPORTANT: The projections or other information generated by the firm’s portfolio simulation tool (Goal Planning & Monitoring) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

From the Desk of Dale Crossley and Evan Shear

We hope this newsletter finds you and your loved ones well. Summer may be coming to an end, but the presidential race is heating up. With that in mind, you may expect that we would use this newsletter to address any anticipated election market impacts. As we’ve mentioned in other communications, election years tend to have a temporary impact on the markets, and our long-term financial plans are structured to manage the inevitable market ups and downs.

Instead, this quarter, we thought we would discuss a topic that’s becoming an increasing concern for our client base – longevity planning. According to the CDC, the average life expectancy in the United States is 77.5 years. As people live longer, planning for a fulfilling life in later years requires a more holistic approach to a prosperous and healthy future. Longevity planning goes beyond traditional retirement strategies, focusing on a balanced integration of financial security, physical health, and emotional well-being. By addressing these interconnected areas, individuals can create a roadmap that not only prepares them for the challenges of aging but also allows them to thrive in every aspect of their lives.

The Financial Side of Longevity Planning

There are a couple of important things to prioritize when you are considering how you will handle your financial life moving into your later years of life. In particular, you should think about the following:

• Preparing for Extended Retirement - It was once the case that one might expect to only have to plan for perhaps a few years of retirement. Now, with the potential for decades of retirement lying ahead, it is necessary to think about how you will have enough money to take to make it last. This calls for a dynamic investing strategy that will have you investing in selections that you might not have otherwise. In other words, you may consider putting money into investments that are likely to continue to generate returns for you long into the future.
• Anticipating Healthcare Costs - It is not necessarily fun to think about, but it is necessary to consider the healthcare costs that will likely sneak up on you at some point. Simply knowing that you are going to have healthcare expenses that you don't currently have to deal with is a step in the right direction. Prepare for a future where your healthcare expenses are going to go up and start investing for that future.

Health Insights From Blue Zones

Certain parts of the world are known as "blue zones." In these areas, the average lifespan of people who live within their boundaries is higher than for the planet as a whole.

This is exciting to know because it means we can intentionally try to create the conditions enjoyed by those in blue zones in our own lives to garner more enjoyment and appreciation. Using some of the practices of those in blue zones in your own life can potentially bring down your healthcare costs. A few things that people in these areas do well include:

1. Eating a diet rich in fruits and vegetables
2. Regular physical activity
3. Maintaining strong social bonds

These three things can help you enjoy a healthier and potentially longer life while also reducing your retirement costs.

Integrating Financial and Health Planning

Far too many people fall under the false assumption that they must only focus on financial planning or health planning. The reality is that the two should feed into one another. When you are making wiser health choices, you ought to be able to appreciate the benefits of doing so by experiencing rewards in your financial life. Those rewards come in the form of reduced expenses.

Using blue zone practices is a great place to start. Consider adding them to your overall healthcare approach to create the best possible atmosphere for improving your health and generating long-term savings that you might not otherwise have had.

We Help With Longevity Planning

While our financial plans are developed for longevity and long-term financial success, we always encourage a plan review to ensure we’re aware of all your life changes and adjustments to future goals. If you would like to review your financial plan please reach out and schedule an appointment.

Any opinions are those of CrossleyShear Wealth Management and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.

15-Minute Moist & Crispy Pan-fried Cod Recipe Doesn't Need a Sauce

This easy pan-fried cod recipe is sprinkled with so many flavorful spices, it doesn't need a sauce.
Serve this easy fish recipe with your favorite side dishes. A side salad wouldn't be a bad idea, either.

Cuisine: American
Prep Time: 5 minutes
Cook Time: 10 minutes
Total Time: 15 minutes
Servings: 4 to 6

Ingredients

• 1 1/2 - 2 pounds cod fillets (or your favorite white fish) 1/2 cup flour
• 1 1/2 teaspoons paprika
• 1 1/2 teaspoons garlic powder
• 1 teaspoon onion powder
• 1/4 teaspoon cayenne (or more to taste)
• 1/2 teaspoon dried oregano
• 1/2 teaspoon dried thyme
• 3 tablespoons olive oil, for frying
• lemon wedges

Here's how to make it:

1. Combine the paprika, garlic powder, onion powder, cayenne, oregano and thyme.
2. Season the fish with salt and pepper. Sprinkle the seasoning blend on both sides of the fish.
3. Put the flour into a shallow bowl. Dredge the seasoned fish in the flour.
4. Heat the olive oil in a skillet. Add the fish and cook until crispy, browned and cooked through, about 4 to 5 minutes per side depending on thickness of the fish. (You may have to do this in two batches so you don't crowd the pan.)

view recipe here

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Navigating Medicare decisions in tricky situations

What encore careers, young dependents and early retirement mean for your elections.

Medicare is an important component of holistic financial planning, but it can get complex for investors who retire early, care for young dependents or work beyond 65. But knowledge is power. Being aware that your unique situation should influence your Medicare choices is half the battle.

Tips for common scenarios

Not everyone retires right at 65. In fact, it’s becoming more common that people are making their own rules and timelines when it comes to retirement.

If you’re planning to retire before age 65, think about how you plan to bridge your healthcare coverage until you become eligible for Medicare. Medicare is designed for those 65 and older or people with certain disabilities. The only way to ensure healthcare coverage before that date is with private health insurance through your employer or the exchange.

What if you decide you’re working past the age of 65 (the Medicare eligibility point), and you’re not sure if you should enroll in Medicare yet? You can drop your employer’s healthcare plan and enroll in Medicare, but first you should consider the out-of-pocket costs associated with doctor’s visits and procedures. Many people will enroll in Medicare Part A, which is hospital insurance, because there's no premium for most people, as long as they have 10 years of Medicare-covered employment. But to enroll in Part B and simultaneously carry group health insurance is like paying double.

What if you’re married and cover your spouse on your employer’s plan? Medicare is individual healthcare coverage, so your spouse would either need to be eligible for Medicare or have their own private health insurance.

Let’s say you have young dependents at home. Maybe they’re your own kids you had later in life, or maybe you care for your grandchildren or other dependents. While Social Security offers benefits for young dependents, Medicare doesn’t. Your dependents would need their own healthcare insurance plans.

Keep up with changes

Regardless of the Medicare decisions you make, you should revisit your selections every year. Open enrollment starts annually in October, which is the time to review what works for you and your family.

Sometimes changes are made to the program or laws that get passed affect Medicare. An example is the Inflation Reduction Act that was passed by Congress in 2022. It doesn’t go into full effect until 2025, but it will reduce out-of-pocket costs for everyone from $7,000 to $2,000 for drugs. It also caps out-of-pocket insulin at $35 per month, which is significant for those with diabetes.

If you need a little bit more guidance with your Medicare decision-making, the first point of contact is Medicare.gov. That site offers a ton of information, including how to enroll. Of course, you can enlist your trusted advisor to help you navigate these important decisions as part of a holistic financial plan as well.

As you consider your Medicare elections:

• Determine if any of your dependents will need to switch to an individual healthcare plan.
• Speak to your advisor about your holistic financial situation to determine what makes the most sense.

Sources: aspe.hhs.gov

The information contained in this report does not purport to be a complete description of the healthcare issues referred to in this material. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.