Asset Protection

Final Call for this $13.61 Million Tax Exclusion for Ultra-Wealthy Individuals

Berkeley Robinson
March 28, 2024
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8 min read

Successful entrepreneurs and high-earning professionals have until the end of 2025 to take advantage of a significant tax exclusion that applies to transfers into trusts. This exclusion - the estate and gift tax “basic exclusion” - is currently valued at $13,610,000 for individuals and double that amount for married couples.

However, this exclusion is set to be cut in half on January 1, 2026, so anyone interested in implementing an offshore trust into their overall financial strategy must act fast before they get hit with a potentially multi-million dollar tax bill.

A Brief Overview of the Estate and Gift Tax

From the IRS’s perspective, anyone who transfers value into a trust without receiving anything in return has gifted the value to the trust and consequently incurs a gift tax on the value transferred. The gift tax is steep; the individual giving the gift has to pay a whopping 40% tax on the value transferred into the trust.

Here’s an illustration to demonstrate how this looks in a frequent real-world scenario:

  • An Ultra-High-Net-Worth Individual (“UHNWI”) wants to establish an offshore trust to protect their assets from the claims of potential future creditors, to take advantage of international investments, or to ensure their children have sufficient assets to achieve their goals.
  • UHNWI transfers $10,000,000 in cash or stocks into the offshore trust.
  • UHNWI incurs a gift tax of 40% of the $10,000,000 transferred into the trust, so they incur $4,000,000 in gift tax.

Yikes! That’s a lot of tax. But here’s the catch…the IRS gives everyone an exclusion that they can use to effectively negate all gift tax liability up to a certain threshold.

The Basic Exclusion is the Key to Tax-Free Transfers into Trust

Let’s continue our previous example:

  • UHNWI applies their $13,610,000 basic exclusion to the transfer into trust by subtracting the $10,000,000 transferred from their basic exclusion, which results in zero gift tax and $3,610,000 of their exclusion remaining.

Nope, that wasn’t magic…that was the power of the basic exclusion. It effectively results in up to $13,610,000 of tax-free transfers into trust.

Oh, and this amount can be doubled if you’re married because the exclusion is “portable,” meaning it can be given from one spouse to the other. This means that the UHNWI in our example can take advantage of up to nearly $28,000,000 of tax-free transfers into trust.

Red Alert: Everyone’s Basic Exclusion Will Be Cut in Half in 2026

Before the Tax Cuts and Jobs Act (TCJA) took effect on January 1, 2018, each individual’s basic exclusion was $5,490,000. However, the TCJA nearly doubled this exclusion to $11,180,000, steadily increasing to $13,610,000 in 2024 to compensate for inflation.

The TCJA is only temporary and is set to end on January 1, 2026, resulting in everyone’s basic exclusion dropping to its pre-TCJA level - nearly half of the exclusion amount today. This gives the UHNWI in our previous example only a short period of time to take advantage of the current exclusion.

To illustrate the effect of the 2026 reduction, let’s re-visit our previous example:

  • UHNWI applies their approximately $7,000,000 basic exclusion to the transfer into trust by subtracting the $10,000,000 transferred from their basic exclusion…resulting in a taxable gift of $3,000,000 x 40% tax rate = $1,200,000 gift tax liability!

Did you see that? The same transfer in 2026 cost UHNWI an additional $1,200,000!

For successful entrepreneurs and high-earning professionals transferring significant portions of their wealth into trust, this tax can add up to multiple millions. The difference between pre-2026 and 2026-and-beyond transfers into a trust is striking.

Taking Action

If you have significant wealth that you want protected for yourself and your future generations, an offshore trust will help you achieve your goals. Ultra-High Net Worth Individuals who are U.S. citizens are rushing to leverage the significant tax strategies available to them today.

Contact Dominion ASAP to begin the process of implementing your trust and we’ll help you take advantage of your basic exclusion before it's too late.

Berkeley Robinson

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