3 Estate Planning Strategies to Help Address the 2017 Tax Cuts and Jobs Act Expiring in 2025


When the 2017 Tax Cuts and Jobs Act (TCJA) went into effect, the federal estate and gift tax exemptions significantly increased from $5.49 million per individual in 2017 to $11.8 million per individual in 2018. These exemptions have been annually adjusted for inflation, and the 2024 federal estate and gift tax exemptions are $13.61 million per individual.

However, the TCJA is set to expire (sunset) on December 31, 2025, returning to the 2017 tax laws, which means the inflation adjusted federal estate and gift tax exemptions will reduce to about $6.8 million per person effective January 1, 2026. The IRS has issued “anti-clawback” regulations regarding the TCJA, confirming that individuals will be able to use the current gift tax exemption amount and not be penalized if the exemption is reduced in the future. The following is a summary of a few advanced estate planning strategies to help reduce taxable estates prior to December 31, 2025.  Please consult your legal advisor who is licensed in your state and specializes in estate planning to determine how this information may apply to your own situation.

1. Estate Planning Strategy: Spousal Lifetime Access Trust (SLAT)

A SLAT is an irrevocable trust where one spouse (grantor spouse) gifts assets to the SLAT with the other spouse as the beneficiary. The trustee of the SLAT can make distributions to the beneficiary spouse during their lifetime, usually for health, education, maintenance, and support. The SLAT also contains directions on how the assets will be distributed on the death of the beneficiary spouse, i.e., to children or trusts for the children’s benefit. A SLAT is most effective at reducing the taxable estate when the grantor spouse gifts an amount that’s equal to the 2024 gift tax exemption or an amount above the projected gift tax exemption in 2026. The “anti-clawback” regulations have created a “use it or lose it” opportunity which allows individuals to make significant gifts now even though the gift tax exemption could be reduced in the future.

Once the assets are gifted to the SLAT, the gifted assets can grow estate-tax free and are not included in either spouse’s taxable estate at death. For example, if an individual gifts $10 million to a SLAT and the gifted assets grow to $25 million, the entire amount escapes estate tax. If the same individual does not gift $10 million and the assets grew to $25 million at death, the 2024 estate tax exemption will only cover the first $13.61 million, leaving $11.39 million subject to estate tax at 40%, which results in federal estate taxes of $4.56 million that could have been avoided by creating and funding a SLAT.

2. Estate Planning Strategy: Dynasty Trust

Dynasty trusts are a type of irrevocable, long-term trust designed to pass wealth from one generation to the next without incurring additional estate taxes. A grantor creates an irrevocable trust during their lifetime and uses their lifetime gift and generation skipping transfer (GST) tax exemptions when the gift is made to the trust (both are $13.61 million in 2024). The gifted assets in the trust and all future appreciation are free from future estate and GST taxation as the assets pass from generation to generation for the duration of the trust’s existence. Additionally, the beneficiaries’ estate and GST tax exemptions will be preserved, allowing their tax exemptions to benefit their family since the inherited assets will not be included in their taxable estates.

As an example, a grantor creates an irrevocable trust with dynasty trust provisions for the benefit of their spouse and children. The grantor makes a $10 million gift to the trust and uses their lifetime gift and GST tax exemption for this amount in the year the gift was made. Assuming the trust assets grow at a rate of 7.2% annually, the gift doubles to $20 million in 10 years. Since the grantor used the exemption amounts at the time of the gift, the assets held in the trust are exempt from estate and GST taxation. The appreciation on these assets is also exempt from estate and GST taxation during the spouse’s lifetime, and for as long as those assets are held in trust for the grantor’s children, future grandchildren, and for future generations to come. Similar to the SLAT, the gift is most effective if it’s equal to the 2024 exemption or an amount above the projected gift tax exemption in 2026 due to the “anti-clawback” regulations.

3. Estate Planning Strategy: Irrevocable Life Insurance Trust (ILIT)

There is no income tax liability for the payout of life insurance proceeds, but the face value of the death benefit is included in the calculation of federal estate taxes. The ILIT is an estate planning tool designed to reduce or even eliminate payment of federal estate taxes upon death.

An ILIT is an irrevocable trust created by an individual (grantor) who funds the ILIT with one or more life insurance policies. The ILIT will become the owner and beneficiary of the life insurance policies during the grantor’s lifetime. The grantor will appoint a trustee who will manage the ILIT and will be responsible for making sure the premiums are paid on time and making distributions to the grantor’s beneficiaries after the death of the grantor. Since the ILIT is the owner and beneficiary of the life insurance policy, the death benefits from the policy will not be included int the grantor’s taxable estate and will not be subject to federal estate taxes upon the grantor’s death.

The grantor can transfer ownership of existing life insurance policies to an ILIT, however there will be a 3-year rule. If the grantor dies within 3 years from the date of the transfer, the life insurance proceeds will be included in the grantor’s taxable estate. Transferring existing life insurance policies will also be considered a gift of the fair market value (approximately the cash surrender value) of the policy. The grantor’s federal estate tax exemption might need to be used depending on the determined size of the gift. The money used to pay the policy premiums can qualify for the federal gift tax annual exclusion ($18,000 in 2024) if the trustee administers the ILIT properly.

While SLAT, Dynasty Trusts, and ILIT are several additional estate planning strategies that can be implemented prior to the sunset of the 2017 Tax Cuts and Jobs Act on December 31, 2025, they can be complex depending on an individual’s circumstances. Schedule a meeting with your MAI Wealth Advisor to discuss the best strategies that can benefit you.

Information updated as of March 18, 2024. This is for educational purposes only.  The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

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