Gift Assets Now
The easiest way to ensure optimal use of the high federal transfer tax exemptions while still available is to make lifetime gifts. Under current law, the increased estate and gift tax exemption ($11.7 million per person, or double that amount for married couples) will go back to the 2017 amounts ($5 million per person, or double for married couples, indexed for inflation) on January 1, 2026. Regardless of any tax laws passed in the interim, gifting assets now ensures full use of the currently available exemptions and removes future appreciation of the gifted asset from your taxable estate at death. Keep in mind, however, the remote possibility of a retroactive application of any decrease in exemptions.
In addition, note that Connecticut is currently the only state in the nation that imposes a gift tax. The exemption is $7.1 million per person for gifts made in 2021. Connecticut residents must be mindful of the exemption when making lifetime gifts in order to avoid being taxed at the state level and should consider gifting any out-of-state property, which is not subject to the Connection gift tax. Similarly, non-residents who own property in Connecticut should consider gifting such property now in order to avoid Connecticut estate tax on the property at death.
Clients should also consider transferring appreciated assets now to escape the potential of future legislation that would impose a deemed recognition event on gifts of appreciated assets, particularly in the case of low basis assets that would trigger significant taxable gains. While the current law remains in effect, the donee, or recipient of a lifetime gift (whether an individual or an irrevocable trust, such as a SLAT or Dynasty Trust will inherit the donor’s tax basis in the gifted asset with no deemed recognition of capital gain.
Regardless of future tax law changes, gifting assets now will escape the triggering of any taxable gain on the transfer. Clients should consider creating an irrevocable trust as the recipient of a taxable gift (or gifting assets to an existing irrevocable trust); doing so not only provides asset protection and management, it ensures that basis carries over to the trust and no capital gain is realized at the time of the transfer.