GIFT & ESTATE | 05/01/2024
Effective estate planning is essential to ensure your assets are distributed according to your wishes while minimizing tax liabilities. From utilizing trusts and gifting strategies to leveraging life insurance and charitable giving, thoughtful planning can make a significant difference. With potential changes in tax laws on the horizon, consulting with estate planning professionals can help you adapt and avoid costly pitfalls.
The possible expiration of enhanced estate and gift tax exemptions under the Tax Cuts and Jobs Act (TCJA) at the end of 2025 highlights the importance of proactive planning. Here are tailored strategies for estates of various sizes to protect wealth, provide for loved ones, and achieve long-term financial goals.
Strategies for Estates Under $14 Million
Even if you don’t expect to face estate taxes, planning for property appreciation and providing for family members can help you optimize your estate plan.
- Annual Gifting
- Use the annual exclusion to gift up to $18,000 per person ($36,000 for couples) in 2024. This increases to $19,000/$38,000 in 2025.
- Regular gifting reduces your taxable estate incrementally over time.
- Non-Taxable Gifts
- Pay directly for a loved one’s medical expenses or education to avoid using your annual exclusion or lifetime exemption.
- Charitable Donations
- Donate up to $105,000 annually (increasing to $110,000 in 2025) from an IRA to a qualified charity, tax-free.
- Planning for Appreciation
- Transfer assets expected to grow in value sooner using trusts or sales strategies to reduce taxable estate value.
- Family Limited Partnerships
- Pool assets with family members and transfer ownership interests at a discount, allowing you to transfer more wealth within gifting limits.
- Trusts for Beneficiaries
- Establish trusts to protect beneficiaries from mismanaging assets while ensuring your estate plan aligns with your wishes.
Strategies for Couples with $14 Million to $28 Million Estates
Couples in this range must plan carefully to use the current exemptions effectively while maintaining assets for their lifestyle.
- Using One Spouse’s Exemption
- Make larger gifts from one spouse before the exemption decreases to maximize tax savings. For example, a $10 million gift from one spouse can use the exemption more efficiently than splitting the gift.
- Lifetime Exemption Gift Recipients
- Direct gifts to children, grandchildren, or trusts like irrevocable life insurance trusts (ILITs) or generation-skipping trusts (GSTs) to keep assets protected from future taxes.
- Spousal Lifetime Access Trusts (SLATs)
- Reduce taxable estate value while allowing a spouse to access trust income and principal. SLATs require careful structuring to avoid reciprocal gift rules.
Strategies for Estates Over $28 Million
For estates above the available exemption, acting early is critical to maximize the benefits of current exemptions and minimize exposure to future estate taxes.
- Utilize the Current Lifetime Exemption
- Take advantage of the $13.61 million exemption ($27.22 million for couples) before it potentially halves in 2026.
- Taxable Gifts to Trusts
- Secure current exemption amounts by gifting assets to trusts. Any future appreciation of these assets will be excluded from your taxable estate.
- Sell Assets to Trusts
- Transfer appreciating assets to an irrevocable grantor trust in exchange for a promissory note. This removes appreciation from your taxable estate while allowing you to retain some control.
- Grantor Retained Annuity Trusts (GRATs)
- Transfer appreciating assets to a GRAT. Any growth exceeding the IRS assumed return rate passes to beneficiaries tax-free.
- Irrevocable Life Insurance Trusts (ILITs)
- Keep life insurance payouts out of your taxable estate while ensuring the proceeds are used as intended.
- Charitable Giving
- Use charitable remainder trusts or charitable lead trusts to support causes while reducing estate taxes.
Stay Flexible and Plan for Uncertainty
The political and regulatory landscape surrounding estate taxes is subject to change. The current exemptions may sunset at the end of 2025, but future legislative actions could alter the framework further. Staying proactive and flexible allows you to adapt to changes as they occur.
How We Can Help
Our tax consulting firm provides comprehensive estate planning services to help you:
- Navigate complex estate and gift tax laws.
- Implement trusts and gifting strategies tailored to your goals.
- Ensure compliance with evolving tax regulations.
Contact us today to secure your legacy, protect your wealth, and prepare for the future with confidence.