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Considering passing on your estate to your loved ones? You may want to act now. Much like a sunset, the current lifetime estate and gift tax exemption is at an all-time high but is set to expire by the end of 2025. Unless lawmakers decide to extend this deadline, the exemption, adjusted for inflation, could slash the limit by half.

Preparing as early as now could lead to substantial savings in estate taxes, not to mention alleviating the stress that comes with last-minute arrangements.

How the estate tax sunset affects you

In 2023, the IRS set the annual gift tax exemption at $17,000 per recipient tax-free. That means you can generously gift up to $17,000 to every member of your family or your friends without worrying about the federal gift tax. Even better, if you are married, your spouse can also gift up to $17,000 to the same people.

So, between the two of you, you can share the love and gift up to $34,000 to each of your children, parents and grandparents without paying any taxes. With $17,000 being the current annual limit, it’s an opportunity you can take advantage of until December 31, 2023.

Should you surpass the annual limit, you’d have to file a federal gift tax return. However, note that a rather generous lifetime gift tax exclusion is in place, set at a high $12.92 million (or $25.84 million for married couples) for this year. It’s likely that you still won’t owe hefty taxes.

Come sunset, the lifetime gift and estate tax exemption is expected to revert to around $5 to $6.4 million per individual. The gift tax rate is also expected to rise to a whopping 45% after the deadline. If you choose to wait and your estate exceeds this exemption, you could face considerable taxes.

To gift or not to gift?

As is for many, it could be to let go of your wealth now. The strategy of gifting now also does not suit everyone’s current circumstances and goals. Furthermore, laws surrounding gifting can change unexpectedly.

There’s still time before sunset arrives; use this as an opportunity to review your existing plan and consider your next steps. Consulting with an estate planning lawyer can help you determine whether taking advantage of the existing exemptions aligns with your financial goals.