You’ve probably heard of the Tax Cuts and Jobs Act of 2017 (TCJA) — one of the most disruptive tax code changes of our lifetimes. You might not know, though, that the change is scheduled to sunset on the last day of 2025.

One easily overlooked part of that repeal? The reversion of the estate and gift tax exemption from 2024’s $13.61M back to half that amount—an expected $6M to $7M by 2026.

In other words, right now, Americans can transfer up to $13.61 million per person without incurring federal gift taxes—or up to $27.22M for married couples. With the 2024 presidential election only a few months away, the future of the TCJA is uncertain—but it’s still a great time to take advantage of these high exemptions. While the current code is still intact, here are three ways to significantly reduce your estate and gift tax liability.

Understanding The Estate and Gift Tax

Let’s take a second to review the estate and gift tax—before diving into how to reduce the taxes you pay for your generosity.

No matter how high the estate and gift tax exemption, you’ll still need to pay federal taxes on gifts that surpass the limit. (And keep in mind, too, that it’s a lifetime limit applied to both the giftee and gifter; you can only give up to the limit to each person or organization you give to, but you can give to as many separate entities as you want.)

Furthermore, the amount of the tax depends on the current value of the assets—rather than their value at the time they were purchased. That can be a big difference, especially when gifting assets that can appreciate substantially, like real estate or art.

Estate and gift tax rates are based on a progressive scale. The lowest rate is 18%, which applies for the taxable value of gifts between $0 and $10,000 above the exemption limit. However, gifts $1,000,001 and higher above the limit are taxed at the whopping rate of 40%.

There are, however, a couple of small loopholes: firstly, the annual gift tax exclusion. According to this exclusion, an individual can gift up to $18,000 annually, and married couples can gift a combined $36,000, without incurring any gift tax. (These figures are for tax year 2024.) Furthermore, surviving spouses usually don’t have to worry about the estate and gift tax thanks to the unlimited marital deduction.

Now, let’s take a closer look at how to most effectively work with this part of the tax code.

1. Irrevocable Life Insurance Trust (ILIT)

Don’t let the word “trust” scare you. An ILIT simply houses a life insurance policy outside of your estate. Upon your death, the insurance proceeds are paid out to the trust—which is managed by a trustee who has the fiduciary duty to pay those proceeds directly to your loved ones.

The premiums you pay on the insurance are considered a gift to the trust—as long as you stay below the annual gift exclusion discussed above. If your financial gift to the trust is used to pay policy premiums, and those proceeds from the trust are then used to provide an inheritance to your heirs, the result is a powerful strategy for those who want to leverage life insurance to leave beneficiaries a large sum of money without stressing over staying under the exemption limits.

2. Charitable Remainder Annuity Trust (CRAT)

Though a bit more complex than an ILIT, a CRAT can also help significantly reduce your estate taxes.

To keep things simple, with a CRAT:

• Your assets are transferred into an irrevocable trust which then generates an annuity payment to you.
• After your death, the excess funds, or “remainder value,” is then passed on to a charity of your choice as a gift—which is, you guessed it, excludable under your lifetime exemption.
• The total value of the assets transferred (the amount you retained for your annuity payment + the amount passed to your charity of choice) are excluded from your estate—and therefore avoid any estate tax.

While CRATs are not as mainstream as some of the simpler trusts, they remain a key wealth transfer vehicle. If you have significant assets, a CRAT can allow you to benefit from those assets and transfer them—as well as shielding them from excessive taxes.

3. Education and Tuition Gifting

As discussed, in 2024, you can gift up to $18k as a singleton or $36k per year as a married couple filing jointly under the annual exclusion (2024). But you can give exponentially more if you’re contributing to an heir’s college education plan, like a 529.

The tax code allows individuals to gift up to five years’ worth of contributions to a 529 plan at once, entirely tax-free—so long as the gift doesn’t exceed the current year’s annual exclusion limit, multiplied by five. Even better, the gifted contributions are applied on a per-beneficiary basis, meaning that they can be made for any number of children, grandchildren, or loved ones.

For example, a married couple who wants to gift funds to eight of their grandchildren can contribute $180k to each of those 529 plans in one year—for a grand total of $1.44M! However, once the 5-year election is made at the maximum exclusion, the taxpayer(s) cannot gift to those 529 plans for another 5 years. Still, this strategy can be a creative and generous way to give to your loved one’s bright future while also reducing a looming estate tax burden.

Plenty of people think estate planning is complex—but there are many estate and trust strategies that can help you substantially reduce your tax liabilities (and your stress). Your loved ones, too, will face less of a hassle once you’ve passed on, along with the potential for ongoing increases in generational wealth.

Working with a financial planner can help you to put together a plan to ensure you’re not leaving anything on the table. We’re here to help—and your first consultation is free.