1. What happens if I give a gift in 2024 when it’s $13.61 million per person and then the exemption is reduced to something like $7 million later? If I start gifting significant amounts while I'm alive, will this cause problems when the current limits sunset after 2025, or if they are changed sooner?
Under current law there will be no "clawback" of exemption previously used that would cause estate taxes on the extra gifted amount. This would still be the case even if the changes to the exemption amounts are put into effect as of an earlier date. Individuals can also give away money annually up to the current limit, which is $18,000 in 2024, to as many people as they would like before it impacts the lifetime limit.
2. For estate taxes, does it matter what types of accounts I'm leaving to heirs? What if all my money is in a retirement account, like a 401(k), or it's all in a brokerage account or some other type of account? Do I need to start reorganizing how my money is held given the changes ahead?
The federal estate tax applies to the value of all assets that a decedent owns or controls at death, regardless of the type of account in which the asset is held. Another option to consider, is that only assets held in certain types of accounts can be efficiently transferred. For example, retirement accounts, such as 401(k)s or traditional IRAs, cannot be transferred to a third party during the account holder's lifetime without triggering income taxes and possibly penalties.
3. If I'm leaving real estate to my heirs and they aren't going to sell it, do any possible changes in the estate tax matter to me? Would my heirs possibly be hit with a tax bill upon inheriting and have to come up with the cash? Does the same apply for leaving rental property, a family business, or a share in a business?
Any estate tax liability is generally the obligation of the decedent's estate, and not the beneficiaries who will inherit the property. The beneficiaries' plans for the assets are not relevant to the taxation of the inherited asset. The value of all real estate would be included in the decedent's gross estate and could be subject to the estate tax, depending on the aggregate size of the estate. That said, for those in states with an inheritance tax, the beneficiary is typically responsible for paying the tax due. Six states have an inheritance tax: Nebraska, Iowa, Kentucky, Maryland, Pennsylvania, and New Jersey.
4. How should I deal with life insurance and my estate? Will any of that change in 2026?
The death benefit of life insurance is considered part of the decedent's gross estate. However, because an irrevocable trust is a separate and distinct entity for estate tax purposes, the value of a life insurance policy owned by the trust would not be included in the estate of the insured.
5. I haven't touched my estate plan in 10 years and I no longer have an estate attorney or anyone to consult. How often do I need to revisit my plan and can you recommend anyone to help me? How do I even get started with so much in flux with the laws?
A good practice is to review your estate plan every 3 to 5 years, and potentially more frequently if certain life events intervene, such as: