2024–2025: Window of Opportunity to Transfer Wealth?

Unless federal lawmakers act, the amount you can transfer free of estate and gift taxes will be cut in half starting in 2026: from $13.61 million this year and nearly $14 million in 2025 ($13.99 million, to be exact) to about $7 million in 2026 (including all adjustments for inflation).

That means individuals can — from now until December 31, 2025 — transfer as much as an extra $7 million without it being subject to the 40% federal gift and estate tax.¹

But who, exactly, should take advantage of this window of opportunity — and how? Your Bessemer advisor can help you determine how much you will need to fund your lifestyle. (See “Your 10-Step Guide to Using the Exclusion Amount,” below.)

Individuals with estates worth well over $15 million and couples with more than $30 million should consider transferring wealth as soon as possible.

Conversely, it would seem unlikely that an individual with a net worth of $15 million or a married couple with $30 million would be willing to give away $14 million or $28 million of their assets, respectively. However, there are many interesting approaches a couple with $30 million might take so they can take advantage of this unique opportunity but still ensure a surviving spouse always has sufficient funds. (See “Special Considerations for Married Couples,” below.)

Bottom line: It could pay (a great deal) to be familiar with all your options, so you can make decisions that best suit your family. To that end, we provide this overview.

Don’t Wait to Put Plans in Place

Why is the lifetime gift and estate tax exclusion amount set to change so dramatically? The answer lies in the Tax Cuts and Jobs Act. This law doubled the exclusion amount, but also scheduled this increase to expire on December 31, 2025.

It is impossible to know whether the next president and Congress will act to preserve the larger exclusion amount. Therefore — even if you just think you might want to take advantage of the greater exclusion amount while it is assuredly in place — we recommend contacting your estate planning professionals as soon as possible.

With the potential sunsetting of the expanded exclusion amount on the horizon, many trust and estate lawyers are very busy, even fully booked, planning with other clients. Also, given that gifts this large are usually made to trusts, you likely would need time to make thoughtful decisions about which assets to use and what the terms of the trust should be.

Remember, you could do the necessary planning now (i.e., create the structure, select the assets, get teed up, and be ready to go) but wait to make the actual gift later — or not at all.

Significant Tax Savings Are Possible

How beneficial is it to transfer wealth free of the 40% gift and estate tax?

Here’s a Simplified Example
Let’s assume that:

• Jane has $50 million of assets
• She has not used any of her lifetime exclusion amount
• The gift/estate exclusion amount is $14 million in 2025
• The gift/estate exclusion amount is reduced to $7 million in 2026
• Jane dies unexpectedly in 2026

Look at the effects of Jane taking advantage of the window of opportunity by making gifts prior to the reduction of the exclusion amount in 2026:

By making the gift in 2025, Jane saved $2.8 million of estate tax. ($17.2 million minus $14.4 million. Another way to look at it is that: Jane transferred an additional $7 million free of gift or estate tax, resulting in a savings of $7 million x 0.4 = $2.8 million.)

The Potential Savings Are Actually Much Greater
But money is not static; if invested, it can grow over time. If in scenario 2, Jane lives another 30 years and the $7 million of assets doubles every 10 years with income and appreciation, the $7 million would have grown to an additional $56 million in her estate. That is because it would double three times: to $14 million in 10 years, to $28 million in 20 years, and to $56 million in 30 years, resulting in an additional $22.4 million of estate tax (at a 40% rate) that could have been avoided with a gift exclusion.

Of course, for married couples, the potential savings could be as much as $112 million in 30 years, if both spouses used their “bonus exclusion amounts” before 2026.

Special Planning Considerations for Married Couples

Married couples thinking of making significant gifts might want to discuss these key strategies with their estate planning professionals:

1. Split Gifts — While both spouses might want to make use of their exclusion amounts before the 2026 decrease, one spouse might not have $14 million of assets. Two planning alternatives may help.

   First, if neither spouse has used much or any of his/her exclusion amount, one spouse could make a gift of about $28 million. Then both spouses could make a “split gift” election that, for federal gift tax purposes, would treat the gift as having been made equally by both spouses. Note, though, that this approach does not work efficiently if one spouse has previously used much of his or her exclusion amount.

   For example: Assume that a wife has previously used $10 million of her exclusion with prior gifts. A current gift of $28 million with a split gift election would treat each spouse as having made an additional $14 million gifts. But, as she has only $4 million of her exclusion remaining (assuming, for simplicity’s sake, that the exclusion amount is $14 million), she would be making a $10 million gift over her available exclusion amount. That extra $10 million would be subject to an immediate 40% gift tax.

   This alternative also does not work if one spouse will be the beneficiary of the trust to which the gift is made (such as the SLAT discussed below). A spouse cannot split gifts to a trust of which that spouse is the beneficiary.

2. Ownership Changes — A second approach is possible if one spouse has a significantly larger percentage of the assets than the other spouse. They might reallocate the assets so that each spouse can take advantage of the bonus exclusion amount. Such a reallocation must be done carefully (be sure to consult your advisors). Such changes could result in a significant shift of marital assets between spouses.²

3. SLAT Planning — Spouses might be reluctant to make a $14 million gift for fear that they might need some of those assets for living expenses later.

   A potential solution might be for one spouse to give his/her assets to a trust of which the other spouse is (or later becomes) a discretionary beneficiary. Distributions to the beneficiary-spouse might never be needed. However, if a financial reversal occurs, the trustee would have the discretion to make distributions to the beneficiary-spouse, which could be used to pay living expenses.

   Note, though, that the SLAT technique has some risk. For example:

   What if the beneficiary-spouse should die before the donor-spouse? You could discuss with your attorney whether the beneficiary-spouse could be given a “power of appointment” exercisable at his or her death broad enough to allow appointing the assets to a trust in which the original donor-spouse is a discretionary beneficiary.

   What if the beneficiary-spouse and donor-spouse get divorced? The trust can include provisions that dictate what happens in the event of a divorce.

Two Cautions

Use the Full Amount Now — or Lose It
If you make a gift of $7 million this year or next and the exclusion amount drops, as scheduled, to about $7 million on January 1, 2026, you will have no unused amount left to give. You will be treated as having used your full (then $7 million) lifetime gift and estate tax exclusion amount.

Therefore, to make use of the large exclusion amount available now in case it is later reduced, an individual must make a gift of the full amount. If using the full exclusion amount of $14 million is not possible, there is still a benefit to using any amount of the “bonus exclusion amount” above the $7 million threshold.

Consider Ensuring Your Estate Has Sufficient Liquidity 
If the gift tax exclusion amount decreases as scheduled, many more decedents will be subject to the estate tax.

The federal estate tax is due nine months after the date of death (although extensions are available in some situations). If you have substantial illiquid assets (such as an interest in a closely held business or real estate) consider the additional liquidity that will be needed to pay estate taxes if the exclusion amount does decline in 2026.

One solution is to acquire life insurance to provide the liquidity. In that case, you might consider funding a trust (specifically, an Irrevocable Life Insurance Trust or “ILIT”) to acquire the insurance so the insurance proceeds remain outside of your estate and are not subject to additional estate tax.

Note, if the exclusion amount does not decrease as scheduled you might have paid for life insurance that was not needed to pay estate tax. To minimize the risk of paying for insurance that might be unnecessary, consider establishing the ILIT and completing medical underwriting for the insurance but not binding the insurance until a later date, when it’s clearer what the amount of the exclusion will be.

Your 10-Step Guide to Using the Exclusion Amount

Here’s how you might you go about exploring whether, and how, to use your full exclusion amount while it is still so robust:

1. Make Sure You Will Keep Enough Assets for Your Lifestyle Needs.

   The first step in any transfer planning is having your advisor engage in sufficient financial modeling to make sure you will keep enough assets to provide comfortably for your lifestyle needs. Bessemer regularly does such financial modeling for clients.

2. Use Trusts.

   Trusts are often used for large gifts, with good reason, as they provide many protections. The trustee you choose should be someone you know will manage the assets properly and wisely and decide when distributions to beneficiaries are appropriate. Trusts can help protect assets from your beneficiaries’ creditors (including claims arising in a beneficiary’s divorce) and can help preserve the value of the assets for future generations.

3. Use “Grantor” Trusts.

   An efficient way to save on estate taxes is to use a “grantor” trust. This trust is structured to treat you, the donor (the “grantor” of the trust), as the owner for income tax purposes, but not for gift or estate tax purposes. This means that the grantor will pay the federal income taxes attributable to the trust income annually, allowing the trust assets to grow much faster. The grantor’s payment of the trust’s income taxes is not treated as an additional gift to the trust.

   The grantor also can sell assets to the trust in return for a low-interest promissory note. The sale of such assets will not cause the grantor to realize gain for income tax purposes, because the grantor is treated as still owing the assets for income tax purposes. If the combined income and appreciation of the assets sold to the trust exceeds the low interest rate on the promissory note, the excess can result in substantial growth for the trust.

4. Consider Trusts That Help Multiple Generations.

   If a generation-skipping transfer (GST) tax exemption is also allocated to the trust, the trust can continue for multiple generations, with no estate or GST taxes being due at the deaths of the beneficiaries. This is sometimes referred to as a “GST Exempt Dynasty Trust.”

5. Explore Defined Value Transfers for Hard-to-Value Assets.

   Additional consideration is needed if the assets used to make the gifts are subject to valuation uncertainties (such as interests in entities that are not sold on public markets, or closely held entities).

   Hard-to-value assets need to be appraised by a qualified appraiser, and this appraised value will be reported on the donor’s gift tax return. If the IRS asserts that the assets are worth more than was reported on the gift tax return, payments of gift taxes may be required if the donor made gifts using most of his/her available exclusion amount.

   To minimize the risk of valuation uncertainty, consider whether a formula gift is appropriate. Consult with your attorney about the possibility of making a formula transfer of that percentage of an identified entity equal to a specified amount, as finally determined for federal gift tax purposes, or (rather than a specified dollar amount) equal to your remaining gift tax exclusion amount. With a formula gift, if the IRS succeeds in maintaining that the price per share is larger than was reported on your gift tax return, the number of shares transferred would automatically adjust but still would not exceed the specified dollar amount. Hopefully, that would result in no current gift tax payments; the IRS has not officially sanctioned formula clauses, although some court cases have recognized these types of formula transfers.

6. Emphasize Flexibility.

   Gifts of the “bonus exclusion amount” (particularly if combined with subsequent sales to a grantor trust) could result in a very large trust. You may want to think through various alternatives so that you create a great deal of flexibility for those who administer the trust.

   Possibilities include:

   • Providing broad distribution standards with independent trustees
   • Including methods for adjusting who serves as trustee
   • Using an independent trustee (who can exercise broad discretion in making distributions)
   • Providing for other persons who would serve as investment or distribution directors, including nontaxable powers of appointment (giving the beneficiaries or other persons the power to “appoint” assets to other beneficiaries or other trusts)
   • Giving the grantor or other persons the power to acquire trust assets by substituting other property of an equivalent value
   • Giving special modification powers to “trust protectors”

7. Consider the Basis Adjustment.

   Assets given to the trust would no longer be owned by the donor at death, so they would not be entitled to a “step-up” in basis at the donor’s death. Consider this loss of basis step-up at death before making large gifts of highly appreciated assets.

8. Look into Allocating Your GST Exemption to Existing GST Non-Exempt Trusts.

   Even if you do not want to make gifts to use the “bonus exclusion amount,” consider allocating your unused GST exemption (which is also scheduled to be reduced from about $14 million to about $7 million in 2026) to any trusts you’ve previously created that are not fully GST exempt.

9. Consider This Opportunity to Equalize Prior Gifts.

   If you have made more gifts to some children and grandchildren than others, the “bonus exclusion amount” gives you the opportunity to equalize gifts, as desired.

10. Loans; Possibility of Forgiveness of Outstanding Loans.

    If you have any loan receivables, you can consider forgiving those outstanding loans that would result in a gift to which the “bonus exclusion amount” could apply.

    Similarly, you could make a loan now of $14 million to family members (preferably to a grantor trust). Later, you could decide to forgive some or all that loan, which would be treated as a gift at the time of forgiveness. This approach would be another way to structure a plan that would allow you to pull the trigger quickly sometime in 2025 before the exclusion amount sunsets. If you decide not to make a gift, the trust could repay the loan, and the only cost to the trust would be the amount of interest owed on the short-term loan.

We Can Help

Clearly, estate planning can get complicated very quickly. But the goals are simple: to take care of yourself and your family. Your Bessemer advisors are available to work closely with you and your estate planning attorneys to help you do that well.