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Generous Across Generations

By John Carey, Managing Director & Portfolio Manager

Steps to Preserve Your Intergenerational Wealth

The 2017 Tax Cut and Jobs Act doubled the lifetime exemption for taxable estates, allowing individuals to pass on nearly $13 million to heirs, tax-free.

Individuals can make lifetime gifts of $12.92 million — $25.84 million for married couples — or leave this amount to heirs at death without federal gift, estate, or generation-skipping transfer tax liability. Exceeding these thresholds incurs a 40% tax rate. Assets transferred to a spouse or charity are excluded from the lifetime exemption.

For families looking to pass on their estates to the next generation, the current tax rule is a major boon. But it might not be for much longer. The estate tax exclusion amount established by the Act is set to expire at the end of 2025.

A Sizeable Difference

The generous exemption provided by the 2017 Tax Cut and Jobs Act allows benefactors to transfer many millions more to heirs than in previous years, when the annual exclusion was under $6 million.

However, unless Congress extends the Act’s provisions before expiration, the exemption is expected to decrease to approximately $7 million, adjusted for inflation.

The difference is sizable. If a taxpayer with a $12 million estate transfers their assets in 2026, they could owe an additional $2 million in taxes than if they transferred their assets today. This is because a larger portion of the estate will be subject to taxation.

Tax Saving Strategies

For families with multi-generational wealth goals, it may be worth taking advantage of these exemption amounts. Here are some key considerations before doing so.

To lock in the current exemption, your wealth must be transferred before the Act sunsets at the end of 2025. Assets can be gifted to an individual or set up in a trust. Those with the need for creditor protection — or concerned by spendthrift heirs — may prefer the latter.

The IRS “anti-clawback” rule is another factor to consider. If there is a difference between the exemption amount when the gift was made compared to the time of the grantor’s death, the IRS will honor the former. So, if the grantor made the wealth transfers while the Act was in effect, the higher exemption will apply, even after 2025. The IRS’s proposed regulations clarify the anti-clawback rules only come into play when one no longer has a continuing interest in the gifted asset.

Finally, it’s important to note, even — or especially — the most generous gifts can carry curses. For one thing, once your assets are gifted or bequeathed, they are no longer yours. There are no options to control how those funds are applied or re-invested. Also, income generated by gifted assets will have income tax implications for the beneficiary. And, ultimately, the tax code is unpredictable. Expectations aside, the exemption amounts may not change in 2026, and these strategic moves could be much ado. While death and taxes are certain, the tax code is not. The wealth management team at Griffin Asset Management can partner with you to build a confident wealth transfer strategy. Contact us today.