How Charitable Giving Can Bolster Your Estate Plan Before the Tax Cuts and Jobs Act Sunsets

Published on December 26, 2024 | LPL Financial
Last updated: January 3, 2025

In 2017, the passing of the Tax Cuts and Jobs Act (TCJA) offered many different taxpayers a variety of benefits including changing deductions, depreciation, expensing, tax credits, and other tax-related items. The provisions were never intended to be permanent, as they had a termination date unless Congress moved to keep the benefits in place. For certain individuals, the sunsetting of this provision could impact their giving strategy. If charitable giving is a part of your estate planning or financial strategy, consider the following reasons and possible benefits of giving before the TCJA sunsets.

Lifetime Gift Tax Exemption

One major provision that proved beneficial for some givers was an increase in the estate and gift tax exemption. In 2017, the gift tax exemption was $5.4 million per person on the transfer of money or property from one person to another, which is the maximum value of assets an individual can leave to their heirs upon death without incurring federal estate tax. The new provision increased the exemption significantly more than the $5.4 million, which has risen steadily and now currently sits at $13.6 million per person.

Once 2025 comes to a close, this benefit may grind to a halt and the nearly $14 million per individual could reset back to less than half that on January 1, 2026. For those high-net-worth individuals who could benefit from the high yearly gift tax exclusion and haven’t taken advantage of it yet, there is still time.

Annual Gift Tax Exemption

The annual gift tax limit sits at $18,000 per person. For married couples, it is $18,000 each for a total of $36,000. If you exceed the annual gift tax limit, you are required to submit IRS form 709 to disclose it when you file your tax return, however, there is a loophole. If your contribution exceeds the exclusion ceiling amount, you can put the excess toward your lifetime exemption and therefore won’t be subject to a penalty.

Remember, the annual exclusion is per recipient. You can give $18,000 to your son, $18,000 to your daughter, $18,000 to a friend, another $18,000 to your aunt, etc., up to $13.6 million if you so choose, all without being subject to the gift tax.

Tax Rates Fluctuations

Another benefit that would be lost if the TCJA sunsets, is that most likely five of the seven marginal tax rates will increase to pre-2018 rates. For example:

• 10% will remain at 10%
• 12% will increase to 15%
• 22% will increase to 25%
• 24% will increase to 28%
• 32% will increase to 33%
• 35% will remain at 35%
• 37% will increase to 39.6%

If the tax bracket change impacts you or your family, this could influence your charitable giving strategy after the TCJA sunsets as individuals interested in giving may not have as much money to give. Giving now before the provision sunsets could help bolster your estate plan and benefit both you and your beneficiaries, potentially saving significant money in taxes.

Consider Consulting Your Financial Professional

In some situations, politics may play a significant role in financial decision-making, depending on the laws and legislation passed by the winning party. There is no way to predict what will happen. In such an unpredictable climate, the most beneficial steps to take are to assess your finances and see where you stand and then consult a financial professional to help you prepare for either outcome.

Sources:

Gift Tax: How It Works, 2024 Exclusion Amounts – NerdWallet

The Tax Cuts And Jobs Act Mainly Expires In 2025 (forbes.com)

Tax planning for the TCJA’s sunset (thetaxadviser.com)

Important Disclosures:

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This article was prepared by LPL Marketing Solutions

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