Advisers say wealthy Americans need a plan as elections will impact estate tax policy

The outcome of this week’s US presidential election could determine the fate of big changes in how wealthy Americans can pass on money to their heirs.

Tax Cuts and Jobs Act (TCJA) 2017 – a federal law that increased exemption from inheritance tax— it expires at the end of next year. If that happens, the exemption limit could be cut in half depending on the new administration and how divided Congress is.

While it’s unclear what will happen with the TCJA and the estate tax exemption next year, experts recommend working with estate planning lawyer and financial advisor to see if giving away money this year or next is a good option.

Why Elections Matter for Inheritance Tax Exemption Limits

Currently, individuals can gift up to $13.61 million to their heirs without incurring any federal taxes.In 2025, that limit will rise to nearly $14 million. Any amount exceeding these limits may be subject to tax at rates of up to 40%. If the TCJA were to expire, this limit would return to pre-2017 inflation-adjusted levels, or approximately $7 million.

“Most households don’t come close to this ($13.61 million threshold) in terms of what they’ll have left over at the end of their lives, but wealthier households should get some tax advice on how to proceed,” she said. Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar.

The TCJA was enacted during the previous tenure of former President and Republican nominee Donald Trump. Trump’s campaign platform states that “Republicans will make permanent provisions of the Trump Tax Cuts and Jobs Act,” including estate tax exemption limits.

Vice President and Democratic nominee Kamala Harris’ platform also doesn’t directly mention estate taxes, but does offer a different take on tax breaks for wealthy Americans. This “includes repealing Trump’s proposed tax cuts for the richest Americans, imposing a minimum tax on billionaires, quadrupling the tax on stock buybacks and other reforms to ensure the very rich play by the same rules as the middle class.”

And that uncertainty, advisers say, should prompt those who may be affected to seek advice now.

“Even if you’re in the $5 million or $6 million space, you may have an estate tax issue down the road,” said Dennis Huergo, vice president of Wealth Enhancement Group.

Strategies to Use Now to Reduce Your Taxable Estate

Even if the law changes and the limits on tax breaks are lowered, Americans can still benefit from the old limits if the transfer of wealth is done in the right way and at the right time.

“They (the IRS) are essentially giving clients the green light to make larger gifts now, knowing that tax relief could come in the next few years, and giving them peace of mind that they (the clients) will not be harmed or will not fined for the said transactions,” he said. Huergo.

Experts note that there are ways people can reduce their taxable estate while still passing money to their heirs, such as by gift tax exemptionallowing individuals to transfer up to $18,000 per person to any number of people in 2024. This annual gift tax exclusion does not affect the lifetime exclusion amount.

People could also take advantage of benefits for tuition and medical expenses, Brady suggests. Subject to these exceptions, individuals or couples may pay tuition and medical expenses directly to educational institutions or insurance companies for dependents, children or grandchildren.

“These (exceptions) don’t count toward the (estate tax) exemption… They also don’t count toward your annual gift exclusion,” said Kevin Brady, vice president of Wealthspire Advisors.

And for those who want to help a friend or family member with future education expenses while reducing their own taxable estate, you can also try gifting 529 plan beneficiary, according to Cameron Valadez, partner and CFP at Planable Wealth.

Huergo also advises some of his clients who are on the cusp of inheritance tax limits on how to use real estate freeze methods to reduce their taxable assets. This involves freezing the value of the asset being assessed and then transferring the tax liability to the beneficiary.

“In this situation, we would have resorted to a kind of real estate freeze method where we placed high-growth assets outside of real estate,” Huergo said. “You will still have access to whatever capital you need to live a fulfilling life while you are still alive.”