Since 2018, individuals have been able to take advantage of an extraordinarily high estate and gift tax exemption. The Tax Cuts and Jobs Act (TCJA) doubled the exemption to approximately $12.92 million per individual, but when the law expires at the end of 2025, this exemption is expected to revert to pre-2018 levels, which were between $5 million to $6 million. 

This reduction in the federal estate and gift tax exemption may have significant implications for high-net-worth individuals. It is advisable to review estate planning documents to decide if revisions are needed to mitigate potential tax liabilities. Here are some possible strategies:

• Maximize current gift exclusions — Individuals can give up to $18,000 per recipient each year without incurring gift tax. This presents a valuable opportunity to reduce the taxable value of one's estate by transferring wealth gradually over time. By making annual gifts to children, grandchildren, or other beneficiaries, individuals can shift substantial assets out of their estate and reduce future tax exposure. Moreover, these gifts can be made directly to beneficiaries or used strategically to purchase other assets, such as life insurance.

• Irrevocable life insurance trust (ILIT) — This is another way to keep a policy outside the estate. An ILIT is a trust designed to own and control a life insurance policy, ensuring that the proceeds from the policy are not subject to estate taxes upon the policyholder's death. By making regular contributions to the trust to cover the insurance premiums (using the annual gift exclusion), individuals can further reduce their taxable estate while safeguarding wealth for their heirs.

• Spousal lifetime access trust (SLAT) — This type of trust offers significant tax advantages while providing flexibility for married couples. One spouse establishes the SLAT for the benefit of the other spouse, allowing the trust to receive substantial gifts before the TCJA sunset. The trust assets and any appreciation are removed from the taxable estate, but the spouse who benefits from the SLAT still has access to the assets during his or her lifetime. 

• Charitable donations — Charitable donations are exempt from estate and gift tax and provide the opportunity to support desirable causes. Individuals can use their current exemption levels to make significant contributions to charitable organizations through planned giving vehicles such as charitable remainder trusts (CRTs) or donor-advised funds (DAFs). Charitable donations are exempt from gift and estate taxes, making them an effective tool for reducing taxable estates while leaving a philanthropic legacy.

As the 2025 sunset approaches, individuals with substantial estates should take a holistic approach to their estate planning. A comprehensive plan should account for all assets, including real estate, business interests, retirement accounts and life insurance. By leveraging available tools, individuals can minimize estate tax liabilities and ensure their wealth is distributed according to their wishes. An experienced estate planning attorney can help you tailor a plan that addresses personal and family goals while taking advantage of the current tax landscape before it changes.

Gesmonde, Pietrosimone & Sgrignari, L.L.C. in East Haven and Hamden advises Connecticut residents on wills, trusts and other methods of achieving their estate planning goals. To set up a consultation with an experienced lawyer, please call 203-745-0942 or contact us online.