By Christopher Sargent, CPA/ABV, AM
Senior Analyst, Valuation & Litigation Services
Email Chris
The estate and gift tax exemption, currently at approximately $13.61 million per individual, is set to revert to around $5-6 million after 2025 unless legislative action intervenes. However, with Donald Trump re-elected for a second term and Republicans controlling both chambers of Congress, there is speculation that the exemption could be extended or even made permanent. This possibility introduces both opportunities and challenges for business owners considering gifting or transferring their ownership interests to mitigate future tax exposure.
Should the exemption sunset as scheduled, estates exceeding the reduced threshold could face a tax rate of up to 40%. For business owners, this could result in substantial estate taxes on closely held businesses. Acting now to transfer ownership under the higher exemption could lock in savings, but uncertainty about whether the exemption will be extended complicates the decision-making process. If the exemption is preserved under the Trump administration, the urgency to act might diminish, allowing for more measured planning.
A tax professional can help you navigate this complexity. They can analyze whether it is advantageous to utilize the exemption now or wait for potential legislative developments. They also can provide guidance on structuring gifts, such as through trusts, and incorporating advanced tax planning techniques to minimize tax exposure while preserving control or income.
Business valuation experts are also a key resource in the estate and gift tax planning process, particularly when considering gifting business interests. As part of the valuation process, they will identify applicable valuation discounts, such as discounts for lack of control or marketability, and ensure compliance with IRS standards. Their report will be used as the support for estate and gift tax returns filed by the owners.
In addition to tax and valuation professionals, an estate planning attorney should be involved to draft and implement the necessary legal frameworks, such as irrevocable trusts, and to ensure compliance with IRS rules. A financial advisor may also contribute by addressing liquidity needs, especially if estate tax liabilities could arise in the future. Together, these professionals will provide a comprehensive approach to managing the risks and opportunities tied to the estate and gift tax exemption.
Given the evolving political and legislative landscape, flexibility and proactive planning is essential. Sponsel CPA Group can be your tax and valuation professional to help you make informed decisions to secure your business’s legacy and financial future.
If you or one of your clients would like to discuss their options and tax planning opportunities, please call us at (317) 608-6699 or email Chris.