The Time to Prioritize Estate Planning is NOW!
Favorable estate and gift tax provisions are set to expire at the end of 2025.
Tax planning for this expected sunset is a must.
Among other provisions, the TCJA provided 10 years of tax relief by almost doubling the estate and gift tax exemptions from its previous levels, adjusted each year for inflation. These elevated exemptions are set to expire and be reset in 2026:
INDIVIDUALS
- 2017: $5.5 million
- 2024: $13.6 million
- 2026: estimated $7 million, adjusted for inflation
MARRIED COUPLES
- 2017: $11.1 million
- 2024: $27.22 million
- 2026: estimated $14 million, adjusted for inflation
INHERITANCE TAX RATES
Inheritance tax rates are progressive and are not scheduled to sunset:- Taxable estates of $1-10,000: start at 18%
- Taxable estates over $1,000,000: 40%
Estate planning starts NOW!
Theoretically, yes, everyone IS affected. Regardless of individual age or estate value, everyone should have an estate plan.
ESTATE PLANNING CONSIDERATIONS
- Do you want specific assets to go to specific individuals?
- Do you want the state to decide who receives your assets?
- Do you want someone to be able to handle your financial affairs if incapacitated?
- Do you have specific guardians in mind for the care of minor children?
- Do you want to minimize costs to your heirs?
- Do you have medical directives your heirs should be aware of?
ESSENTIAL ESTATE PLANNING DOCUMENTS
Regardless of an estate’s value, we recommend everyone plans for their estate:
- Preparing wills and possibly establishing a living trust
- Designating beneficiaries on life insurance policies and retirement income plans
- Determining power of attorney and designating individual(s) to handle financial affairs
- Establishing advance healthcare directives
- Appointing guardians for the care of minor children
- Other considerations, as applicable
Preparing these documents and making these decisions for the first time is just the first step.
It’s important that these plans and documents be periodically reviewed and adjusted as major life changes occur.
If you don’t plan, someone else will.
If you have a taxable estate over $7 million, it’s time to do some additional strategic planning. Under reduced exemptions, some estates will become taxable and others will be subject to a considerable tax increase due to the reduced exemptions and could substantially decrease the value of your estate.
As some states also have estate tax with varying exemption levels, estate planning should also take into account an impact on the state level.
COMPARATIVE EXAMPLE
Let’s look at an example showing the difference between the current and projected estate tax exemption limits. A married couple makes advanced gifts to reduce the taxability of their estate:
PLANNING WITH PROFESSIONALS
Start your estate planning with the appropriate professionals. It is recommended to contact professionals as soon as possible to begin estate planning, as their services will be in high demand and their time will become even more limited.- CPA
- Attorney
- Investment advisor
- Business valuation analyst
- Others important to your estate planning, such as family or heirs
KEY PLANNING POINTS
What might be some of the first steps you and your professional services team do to plan for your estate?- Value assets at fair market value
- Determine assets that will have significant appreciation
- Conduct financial planning and cash flow analysis to best determine how to maintain lifestyle
- Take advantage of higher exemption now
- Use the gift tax exclusion of $18,000 (individuals, 2024) / $36,000 (married, 2024) to one (1) individual. Easiest way? Give direct cash gifts.
- Gift low basis, appreciated stock to charitable organization or charitable donor fund
- Set up one or more irrevocable trusts and transfer assets to the trust (note: this approach will vary based on individual facts and circumstances)
- Set up a charitable trust and transfer assets to the trust