Rich Americans may be about to lose a tax benefit they love — and now they’re racing to get their affairs in order

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Rich Americans may be about to lose a tax benefit they love — and now they’re racing to get their affairs in order

Rich Americans may be about to lose a tax benefit they love — and now they’re racing to get their affairs in order

The clock is ticking for wealthy families who want to take advantage of a major tax break that allows for the tax-free transfer of up to $27.22 million in assets.

The tax break was established by the Tax Cuts and Jobs Act, which was signed into law in 2017, and it is sunsetting automatically in 2025 — so it could disappear for the foreseeable future.

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Here’s what the tax break is, along with some details on how families are rushing to take advantage of it and some advice on whether you should do the same.

The Tax Cuts and Jobs Act made many changes to the tax rules, but one of the biggest modifications involved a significant increase to the estate and gift tax exemption.

In 2017, wealthy individuals could transfer a total of $5,490,000 in assets without incurring estate or gift taxes. This is called the lifetime exemption and it applies to gifts you make above the annual exempt amount, as well as to assets that you transfer upon your death.

The new law significantly increased the amount you could transfer. The limit jumped up to $11,180,000 in 2018 and has been adjusted upward automatically each year.

In 2024, it’s possible to transfer as much as $13,610,000 without owing taxes. This is per person doing the transferring. Married couples can combine their exemptions to transfer $27.22 million.

That big increase will go away next year unless lawmakers act again. When it goes away, the amount you can transfer tax-free will fall to somewhere in the $6 million to $7 million range. Assets above that threshold will be subject to a 40% transfer tax.

As a result of this change, many wealthy families are eagerly transferring assets this year while they can still take advantage of the larger exemption to move money to children and other loved ones without owing the IRS a cut.

Read more: Rich, young Americans are ditching the stormy stock market — here are the alternative assets they’re banking on instead

While the change to the estate and gift tax exemption could profoundly impact wealthy Americans, it is likely to have no consequences at all for the vast majority of people.

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Unless your estate exceeds $6 million, or $12 million as a married couple, or unless you want to give gifts in excess of those amounts, you do not need to worry about the estate or gift tax even after next year’s changes.

It’s also worth remembering that there is an annual exclusion for gifts. Only amounts above this annual exclusion count toward your lifetime exemption.

The annual exclusion was $18,000 per person per recipient in 2024, and it was pretty high even before the Tax Cuts and Jobs Act (It was $14,000 in 2016, for example). If you are married, you and your spouse can each give this amount.

So you could give away a combined $36,000 a year with no taxes — and that’s per recipient. If you have two kids, you could give them each $36,000.

If you have very significant assets and will need to transfer more than these amounts, then you need to be concerned about the potential changes to the gift and estate tax exemption coming in 2025.

If that’s not your situation, you don’t need to worry about the loss of this tax benefit at all.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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