The federal estate and gift tax exemption is one of the more politically volatile provisions in the tax code. The current exemption, historically high by any measure, is scheduled to sunset at the end of 2025 under existing law, reverting to roughly half of the current level. The political environment makes the exemption’s future uncertain, but the planning implications of the scheduled sunset are significant enough that high-net-worth families should evaluate their options before the deadline.
AE Tax Advisors, the tax advisory firm specializing in high-income and high-net-worth strategy, has developed specific expertise in estate tax exemption planning that the current environment requires. The work involves evaluating whether and how to use the current high exemption before any potential reduction, structuring transfers to lock in current benefits, and coordinating with estate-planning attorneys on the legal implementation.
The strategic framework for exemption planning involves several specific considerations.
The first consideration is the “use it or lose it” dynamic. The IRS has issued guidance confirming that gifts made under the current high exemption will not be “clawed back” if the exemption is later reduced. This means that families who use the current exemption (by making gifts above the lower scheduled future exemption amount) preserve the benefit even if the exemption reverts. Families who don’t use the current exemption simply have less of it available going forward if the reduction occurs.
The second consideration is the timing window. The current exemption is scheduled to sunset at year-end 2025 absent legislative action. Whether legislation will extend, modify, or allow the sunset to occur is uncertain. Families planning to use the current exemption have a defined window in which to execute the transfers, and the work has to be completed within that window to lock in the benefit.
The third consideration is the transfer techniques. The most powerful exemption-using techniques are not always direct gifts. Trust structures, such as Spousal Lifetime Access Trusts, Generation-Skipping Trusts, Grantor Retained Annuity Trusts, Intentionally Defective Grantor Trusts, and others, allow families to use the exemption while maintaining various levels of control, access, or income from the transferred assets. The selection among these techniques depends on the specific family situation, the asset types being transferred, and the long-term planning objectives.
The fourth consideration is the selection of assets for transfer. Different assets produce different transfer tax outcomes. Assets expected to appreciate yield larger transfer tax benefits because the post-transfer appreciation is excluded from the taxable estate. Closely held business interests with valuation discounts can transfer larger underlying values at lower transfer tax cost. Real estate, intellectual property, and other illiquid assets each have specific transfer characteristics that affect the planning.
The fifth consideration is the basis step-up trade-off. Assets transferred during life carry the donor’s basis to the recipient, with no step-up at death. Assets retained until death receive a step-up in basis under IRC §1014. The trade-off between current exemption use (no step-up) and retention until death (step-up, but with exposure to a potentially reduced future exemption) is one of the central calculations in exemption planning. AE Tax Advisors models the outcomes under different scenarios to identify the optimal approach for each family.
The sixth consideration is the multi-generational coordination. Effective exemption planning often involves multiple generations, including grandparents, parents, children, and sometimes grandchildren. The family-level planning across generations requires coordinating individual planning decisions to optimize the family’s collective transfer-tax outcome.
The seventh consideration is the state tax overlay. Federal estate tax exemption planning is one layer of the broader transfer tax picture. Several states impose their own estate or inheritance taxes with significantly lower exemption thresholds than the federal exemption. The state tax overlay affects the optimal planning approach, particularly for families whose primary residence is in a state with significant state-level transfer taxes.
AE Tax Advisors handles the tax analysis and strategic planning components of the exemption work. The drafting of legal documents (the actual trust agreements, gift documents, and entity transfer paperwork) remains with the client’s estate planning attorneys. The firm coordinates with the attorneys on the structural and tax aspects to ensure that the legal implementation reflects the tax-planning intent.
The annual $7,800 advisory engagement at AE Tax Advisors includes the exemption planning work as part of the broader strategic tax relationship. The proprietary 3-Year Tax Lookback evaluates whether prior wealth transfer activity was optimally structured and whether catch-up positioning should be executed before the sunset deadline.
The firm’s team, made up of IRS Enrolled Agents and licensed CPAs, led by Christina Nortman, has developed specialized expertise in high-net-worth wealth transfer. The work coordinates with estate planning attorneys, family office staff, financial advisors, and other professionals to ensure the planning is integrated across the family’s full advisory team.
For high-net-worth families with assets potentially exposed to the scheduled estate tax exemption reduction, the AE Tax Advisors conversation is one of the time-sensitive planning moves available within the current environment. The window is defined. The strategies are technical. And the team’s expertise in this category is one of the dimensions that distinguish the firm in the high-end tax advisory market.
