How families are skirting estate taxes: Wealthy Americans have doubled the amount they’re gifting each year as the end of Trump-era tax breaks looms
How families are circumventing estate taxes: Wealthy Americans have doubled the amount they give each year as the end of Trump-era tax breaks approaches
- Former President Donald Trump doubled the amount families could give away without paying inheritance tax
- But the tax break expires in 2026, and the possibility of an extension is unclear
- IRS figures show that Americans doubled the amount they gave away by 2026
Wealthy families scramble to donate their money as the generous Trump-era tax cuts come to an end.
The former president doubled the amount families could give away in their lifetime without paying estate taxes from $5 million to $10 million in 2017.
But the temporary cuts expire in 2026, prompting wealthy Americans to move their money.
Internal Revenue Service figures show that Americans gave away $182.6 billion in 2021, more than double the $75.2 billion they gave away the previous year. Gifts worth more than $17,000 per year are reported on IRS Form 709.
Financial planners said couples with a net worth of more than $10 million feel the urgency to protect their assets in anticipation of the changes.
Internal Revenue Service figures show that families gave away $182.6 billion in 2021, more than double the $75.2 billion they gave away the previous year
New Jersey-based public accountant Shamisa Zvoma, told the Wall Street Journal: ‘We are looking at a golden opportunity to transfer tax-free.’
Of the funds given away in 2021, more than $100 billion was donated through trusts, with an additional $14.8 billion going to charity. Trusts are a popular way for parents to give away their money while they’re alive — without incurring a huge tax bill.
Trump’s $10 million threshold was indexed for inflation, meaning that by 2023, the gift and estate tax exemption was $12.92 million per person. Couples can donate up to $25.84 million together.
Inheritance is a contentious political issue: Republicans have long advocated the total elimination of estate taxes, while Democrats have argued that it should be tightened.
It means that when the current rules expire on December 31, 2025, there is no guarantee that they will be extended.
Real estate attorney Peter Tucci, of Proskauer, told the WSJ that next year the threshold will likely be adjusted to $13.61 million before going back up to $14 million in 2025.
Then it will probably drop by half to $7 million by 2026, Tucci predicts.
“You have to assume that the exemption amount will go down,” he said.
Inheritance is a contentious political issue: Republicans have long advocated the total elimination of estate taxes, while Democrats have argued that it should be tightened
“If you count on the exemption remaining at $14 million in 2026, that’s a gamble and you may be leaving a lot of tax savings on the table.”
Tucci added that a family that transfers the full $28 million exemption amount to their children by 2025 could save a whopping $5.6 million in tax if they die in 2026.
And the tax savings will be greater in the long run: if money grows in a trust, the increase in value is exempt from transfer tax.
A Global Wealth Report by economists from UBS and Credit Suisse shows that there are 1.5 million Americans with a net worth between $10 million and $50 million. Another 125,000 citizens are even richer.
The numbers come as reports suggest Americans are in the midst of a “great wealth transfer,” with Millennials and Generation Z set to hand over $53 trillion by their baby boomer parents before 2045.
Recent research by life insurer New York life found that adults who expect to inherit in the next 10 years will receive an average of $700,000.