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Reserve for Tampa Luncheon

Discussion Leaders

Hood Craddock, CPA
Director of Family Office Services

Peter J. Knize, J.D., LL.M., AEP®
Chief Fiduciary Officer

Read More About 2025 Estate Tax Changes

Join us for this important luncheon on 2025
estate tax changes.

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    Don’t Wait to Address 2025 Tax Exemption

    A critical milestone is fast approaching in the gift and estate tax landscape. The gift tax exemption, a cornerstone tool of estate planning, is set to be cut approximately in half at the end of 2025. This exemption allows individuals to transfer substantial wealth to their heirs and beneficiaries without incurring a tax and has provided many families with an avenue to leave large legacies to their family for future generations.

    Understanding the Gift Exemption / Sunset Provision
    In 2017, the Tax Cuts and Jobs Act (TCJA) nearly doubled the lifetime gift and estate exemption for individuals from $5.6 million to $11.18 million per individual, indexed for inflation. For 2024 that number has increased to $13.61 million per individual, or $27.22 million per couple.

    However, this unprecedented exemption is going to sunset at the end of 2025, barring congressional action. Starting in 2026, the projected exemption will drop to roughly $7 million per individual. This means that if individuals do not take advantage of the higher exemption amounts before 2026, they will be lost. At a 40% estate tax rate, that could cost a couple approximately $5.6 million in additional estate taxes ($14 million of lost exemption @ 40% tax rate) – at least until such a time when congress increases the exemption, which given our political climate, seems unlikely for the foreseeable future.

    The Estate Tax Advantage – Even in Uncertainty
    You may be asking the question – what if Congress passes legislation to keep the exemption amounts at current levels? Due to the power of an appreciating asset, whether that be a growing and thriving business, or stocks in the market, these gifts still provide a significant benefit.

    Here is how you can have the best of both worlds by maintaining a degree of control while leaving a large legacy behind. As assets grow considerably over time they would typically be inside your taxable estate. The power of gifting now means that these assets are outside of your estate, likely in trusts. Any appreciation in the assets after the date of the gift will avoid the 40% estate tax. These trusts may be designed to benefit your heirs and beneficiaries using your specific intentions (and not directly outright).

    Strategies for Gifting
    As mentioned above, trusts are an excellent tool to accomplish your gifting and estate planning goals. A few common examples of trusts for gifting are described here:

    • Intentionally Defective Grantor Trust (IDGT) – this trust allows for the grantor (you) to move assets to a trust, utilizing your exemption, and pay the income tax the trust generates – further reducing your estate if so desired.
    • Spousal Lifetime Access Trust (SLAT) – In a SLAT, you can name your spouse as the lifetime beneficiary of a trust, with the remaining principal going to your heirs at your spouse’s death. This allows the couple to still benefit from the gift, knowing it will eventually move to beneficiaries. It’s a way to ensure financial security for your spouse while taking advantage of the current higher exemption. Both husband and wife can create their own trust for this purpose. Visit with your advisor to discuss the rules around this option.
    • Dynasty Trust – This trust allows you to place assets in trust for many future generations. The assets in a dynasty trust can grow and provide for your descendants over a long period, often without incurring additional estate or gift taxes due to the trust’s structure. This can be particularly advantageous in maximizing the benefits of the current high exemption.

    Next Steps
    The window is closing on this rare opportunity to transfer substantial amounts of wealth to your heirs and beneficiaries without incurring federal gift taxes. The end of 2025 may sound far off, but keep in mind that this is also about manpower. Financial advisors, tax professionals, and estate planning attorneys will all have heavy workloads as families begin to address this issue, so it is important to act now in order not to miss this window of opportunity to leverage the gift tax exemption to its fullest advantage and protect your legacy.

    LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. Not FDIC Insured | No Guarantee | May Lose Value

    About The Tampa Bay Trust Company
    The Tampa Bay Trust Company and The Naples Trust Company are divisions of The Sanibel Captiva Trust Company of Sanibel, Florida; an independent firm with $4.5 billion in assets under management that provides Family Office and Wealth Management Services, including investment management, trust administration and financial counsel to high-net-worth individuals, families, businesses, foundations and endowments. Founded in 2001 as a state-chartered independent trust company, the firm is focused on wealth management services that are absolute-return oriented and performance driven. Offices in Sanibel-Captiva, Fort Myers, Naples, Marco Island, Tampa Bay, Belleair Bluffs and Tarpon Springs. www.tampabaytrustcompany.com