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Welcome to “Trust Us: Estate Planning Wisdom,” the podcast where we unravel the complexities of estates and trusts to empower you with the knowledge needed for effective legacy planning. This podcast is your guide through the intricate landscapes of wills, trusts, and probate. Thank you for joining us — we hope you find the discussions informative, but remember, when it comes to legal matters, always consult with a qualified attorney regarding your specific case.
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Herb Fineburg: We've had some very
interesting news that's developed
as a result of the passage of
the One Big Beautiful Bill Act.
We have been anticipating loss
of 50% of our clients' lifetime
exemptions as of January 1st, 2026,
and instead the exemption is gonna be
kept and it's gonna keep increasing.
What is the news?
Right now the exemption is
approximately $14 million per person.
This is $28 million per couple.
Beginning January one, the
exemption will be $15 million per
person, or $30 million per couple.
The exemption is something that can
pass through your estate to your
children and your grandchildren, and
not have to pay the currently 40%
tax rate to the federal government.
Besides the federal government, there's
also states that have inheritance
taxes that we have to address.
But that's been the major change
that has taken place as a result
of the One Big Beautiful Bill.
Danielle, what is the situation now?
Are we gonna stop making gifts and just
wait until, when the person passes away?
Or is it better to make a gift now?
Danielle Friedman: So a lot of
practitioners would say that due to
the fact that the exemption is as
high as it is, you don't need to do
planning or need to do as much planning,
but I'm a big advocate of using the
exemption during life rather than
waiting until someone dies to apply the
exemption to the value of their estate.
As we know, you can either use your
exemption during life by gifting.
Or if you don't make gifts or don't
use all of your exemption during your
lifetime through gifting, anything
remaining at death and the exemption
in the year of your death will
apply to the value of your estate.
We all learn that a dollar today is worth
more than a dollar in the future, and
given inflation and the ability of assets
to appreciate in the future, I have been
recommending that my clients continue to
make gifts to irrevocable trusts in order
to reduce the value of their estates,
even if they don't have taxable estates
now, and if their estates are not worth
15 or $30 million, they may very well be
in the future given you know how the stock
market is performing and things like that.
So always better to give the property
away now if you can, and let it
appreciate outside of your taxable estate.
Max McCauley: Two points to add to that,
the exemption, as you said, applies to
estate tax, gifting or the gift tax, and
also a third to generation gifting taxes.
So there's a lot of opportunity for
planning there, I gather, Danielle.
Danielle Friedman: Yeah.
A ton of planning opportunities, and
we can't take for granted that this
exemption is going to be around forever.
Max McCauley: Wait, I
thought it's permanent now?
Danielle Friedman: As with any
law, Congress can always change it.
And of course it depends
on what the appetite is in
Congress and in the White House.
And while it's unlikely that the law will
change during the current administration,
there is no guarantee that the law could
not change during future administrations.
We saw proposals during the Biden
administration to reduce the
federal state tax exemption, it
often comes up every time there's
a change in power in Washington.
So right now it's high in 2026, it
will be 15 million per person, but
there's no guarantee for the future.
And if you don't use exemption
during your lifetime, then you are
only stuck with what the exemption
is in the year of your debt.
So if you die in a year where the
exemption is low, that's all you get.
Max McCauley: There's at
least two advantages to using
the exemption now, correct?
One is we can make the gifts and
report them on the tax returns and
address the statute of limitations.
You talk about that, right?
And the second was, Biden's proposal
actually not only was going to change
the exemption, but it was going to
be retroactive about six months.
And now, although this is permanent,
it wasn't considering going
clear back to when it changed
in 2017 with the TCJA, correct?
So if we actually made the change now
made the gift now and the law changed
in the future, say a year or two years.
What's the odds of it being retroactive?
So, two part question.
Danielle Friedman: There's no claw back.
There's no chance that the government is
going to claw back any gifts that you make
that exceed the value of the exemption.
So if, for example, the exemption is 15
million and you make $15 million worth
of gifts in 2026, and then in 2027,
the exemption is reduced to 10 million,
they can't claw back that excess $5
million worth of gifts that you've made.
The IRS has made that clear that
they're not going to claw back gifts
if the exemption was used correctly.
But to your point, as far as starting with
statute of limitation running among gifts.
Always a good idea to
get that statute running.
The IRS has three years from the date
that a gift tax return is filed to
challenge the valuation of the gift.
And this is particularly important if
you're using techniques like discounting
or part gift, part sales where there's
more I would say opportunity for
aggressive gifting and, risks that
the IRS may challenge your gift if
you make a gift while the exemption
is high you have more wiggle room.
If the IRS does come back and
challenge the value of the gift.
And of course, you have three years,
so if you get that statute running,
it's done after three years, you
don't have to worry about it.
Max McCauley: So many practitioners
are saying there's no rush to finish
gift tax planning this year given
that this exemption is now permanent.
Do you agree or disagree?
Danielle Friedman: There's no rush
to do it before 12/31/2025, but
I wouldn't, put it on the back
burner and forget about gifting.
I would say, if you don't have time
this year, that's okay, but if you
have an estate where you expect it to
appreciate significantly, or you're
a business owner and you're thinking
that in the future you might sell your
business for a significant gain, now's
the time to make the gifts don't wait.
Max McCauley: And we can still run
the statute of limitations as well,
Danielle Friedman: Of course.
And Herb, can you tell us even though
there is less likelihood of families
facing an estate tax, given the exemption,
we still have state law to consider.
And can you talk about the benefits
of making gifts in light of state
inheritance and estate tax laws?
Herb Fineburg: Sure.
One of the major differences between a
state inheritance tax or debt tax is that
there is no such thing as an exemption.
From dollar one, it's subject
to state inheritance tax.
However, unlike the federal government,
which taxes both gifts during the
lifetime as well as gifts upon death,
the states generally do not tax gifts.
So you can, before you pass away,
give something away and remove
it from your estate and save all
of the e state inheritance tax.
So it's planning from a state level is
still recommended for gifting purposes,
and it's encouraged that people do that.
There are a couple of different rules.
For example, in Pennsylvania, after you
make a gift, you have to live one year
before it's brought back into your estate.
New York has a higher death tax rate that
say Pennsylvania, New Jersey has more
exemptions from the death tax than others.
So you have to go from state to state
to figure out how best to employ it.
But in the end you're going to be saving
a lot of state death taxes by doing
gifting now, in part because states don't
have any such thing as an exemption.
Danielle Friedman: Yeah, it's interesting.
New York is a really interesting
example because it has an estate
tax exemption of 7 million.
The federal exemption, let's say it's
gonna be 15 million, so you could
give away $15 million worth of assets,
not pay any federal estate tax, get
your estate below the New York Estate
tax exemption and not have to face
any New York estate taxes either.
New York doesn't have a gift tax, so
there's no, no issue with giving away
the 15 million during your lifetime,
but if you own that 15 million at
death, then half of it is gonna
be subject to New York estate tax.
So it's very prudent, especially
in states that do have death
taxes to engage in gifting.
Max McCauley: Even if you have a current
estate plan, maybe it was done since
2017 when the TCJ went into effect,
wouldn't it be a good idea to have
that estate plan reviewed to make sure
you're fully taking advantage of the
new $15 million exemption next year.
Even if you have an estate plan and
you think that you've addressed it,
and that happened 5, 6, 7 years ago, it
would be important to have your lawyers
review your estate plan again to make
sure you're fully taking advantage of
the $15 million exemption for estate
tax, gift tax, generations gift tax.
Danielle Friedman: Sure.
I mean, think about the value
of your assets in 2017 and think
about the value of your assets now.
Hopefully they have increased
significantly despite COVID
and downturns in the market.
We're looking at record highs
these days, so I'm assuming most
of our clients have had significant
appreciation in their portfolios
and in their business interests.
So it's always time to take a
look and see how you can leverage
tax laws to your advantage.
Herb Fineburg: And this is especially
important for business owners who believe
that their businesses are going to be
worth a heck of a lot more than they
might be valued today, so that they
could get that out of their estate and
through different techniques that we
have, such as trust for spouses, still
have a hundred percent access to those
assets, but have those assets appreciating
outside of their taxable estate.
Danielle Friedman: And I think to end
it on this note, no matter what type of
gifting you're gonna be engaging in, it's
always better to gift something in trust
rather than outright to the recipient.
I think that we've gone into great
detail about the benefits of why
gifting into trust in prior episodes.
So, if you are gonna engage in
gifting, please use a trust.
Herb Fineburg: Great.
Thanks.
Danielle Friedman: Thank you guys.
Till next time.