GIFT & ESTATE | 11/02/2024
Estate Planning: Securing Your Legacy and Reducing Taxes
When it comes to your estate, thoughtful planning is essential to ensure your assets are distributed according to your wishes while minimizing estate taxes and other expenses.
The potential expiration of the enhanced estate and gift tax exemptions under the Tax Cuts and Jobs Act (TCJA) has drawn attention to the importance of proactive estate planning. Although a reprieve may occur, now is the time for individuals and families to explore strategies to protect their wealth, provide for loved ones, and achieve long-term financial goals.
Estate Planning Tips for Estates Under $14 Million
The TCJA doubled the lifetime estate and gift tax exemption, but this benefit may expire at the end of 2025. If the exemption decreases, more estates could face significant tax liabilities. Consider the following strategies if your estate is below the current exemption threshold but you still wish to plan for future growth and provide for family members:
- Annual Gifting: Take advantage of the annual gift tax exclusion by giving up to $18,000 per person per year ($36,000 for couples), increasing to $19,000/$38,000 in 2025.
- Non-Taxable Payments: Pay directly for someone’s education or medical expenses without using your lifetime exemption.
- Charitable Donations: Donate up to $105,000 annually from an IRA to a qualified charity tax-free (increasing to $110,000 in 2025).
- Planning for Appreciation: Transfer assets expected to grow in value into trusts or through sales to reduce potential estate taxes.
- Family Limited Partnerships (FLPs): Pool family assets and transfer interests at a discount to maximize wealth transfer.
- Trust Planning: Use trusts to secure your beneficiaries’ financial future while maintaining control over distributions.
- Flexibility in Planning: Remain adaptable to potential tax law changes and adjust plans accordingly.
Strategies for Couples with Estates Between $14 Million and $28 Million
Couples with estates in this range can take advantage of the current combined $27.22 million exemption ($27.98 million in 2025) while carefully balancing their own financial needs. Strategies include:
- Using One Spouse’s Exemption: Consolidate gifts under one spouse’s exemption to maximize tax benefits if the exemption decreases.
- Lifetime Gifts: Transfer wealth to children, grandchildren, or irrevocable trusts like ILITs and GSTs.
- Spousal Lifetime Access Trusts (SLATs): Create a SLAT to allow one spouse access to trust income while keeping assets outside the taxable estate.
Estate Planning for Estates Over $28 Million
For estates exceeding the current exemption, advanced strategies can help reduce future tax exposure:
- Maximize Current Exemptions: Use the $13.61 million lifetime exemption (per person) before it potentially halves in 2026.
- Taxable Gifts to Trusts: Decrease taxable estate size while locking in today’s higher exemptions.
- Asset Sales to Trusts: Sell assets to grantor trusts to transfer appreciation potential without triggering income taxes.
- Combine Gifts and Sales: Mix gifting and sales to trusts for optimal estate reduction.
- Grantor Retained Annuity Trusts (GRATs): Use GRATs to transfer asset appreciation to beneficiaries tax-free.
- Irrevocable Life Insurance Trusts (ILITs): Exclude life insurance payouts from taxable estates while ensuring funds are used as intended.
- Charitable Giving: Establish charitable trusts to support causes you value while reducing your estate tax burden.
Why Work with Chartered?
Proactive estate planning can help you secure your financial legacy, transfer wealth efficiently, and minimize tax exposure. Our experienced team will guide you through every step of the process, from understanding current laws to implementing advanced strategies.
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