Seize the Sunset: Navigating the Looming Shifts in Estate Planning for High Net Worth Families

Ann Miller |

The landscape of estate planning is poised for significant changes, particularly for high net worth individuals, as we look towards the end of the Tax Cuts and Jobs Act (TCJA) provisions. The TCJA, enacted in 2017, significantly raised the lifetime estate and gift tax exemption amounts, offering substantial relief to many taxpayers. For 2024, this exemption is set at $13.61 million for individuals and $27.22 million for married couples. However, without Congressional intervention, these exemption amounts are scheduled to revert to their pre-2018 levels—approximately $7 million for individuals and $14 million for couples (adjusted for inflation) after 2025. This change is expected to increase the number of estates subject to estate tax dramatically.

For high net worth individuals, this presents a critical window for estate planning to maximize the current exemptions before they potentially decrease. Engaging in strategic gifting, utilizing trusts, and exploring other estate planning vehicles are advisable to mitigate future estate tax liabilities. The potential reduction in exemption amounts could lead to a significantly higher estate tax burden for estates exceeding the new thresholds. Additionally, the Biden Administration has proposed further adjustments, including lowering the lifetime estate and gift tax exemption amount to around $3.5 million per individual and increasing the estate tax rate from 40% to 45% on amounts exceeding the exemption.

Given these impending changes, 2024 and 2025 represent critical years for high net worth individuals to take proactive steps in their estate planning. Strategies such as gifting to irrevocable trusts or leveraging other estate planning techniques, like Grantor Retained Annuity Trusts (GRATs) and intra-family loans, should be considered to lock in the current exemption levels. For instance, using the current exemption to make gifts can significantly reduce the taxable estate and potentially save millions in future estate taxes.

Moreover, with the uncertainty of legislative changes and the potential for the exemption amounts to be reduced, reviewing and potentially revising existing estate plans to align with current laws and anticipated changes is paramount. Estate planning should not only focus on leveraging the current tax advantages but also ensure flexibility to adapt to future tax law changes.

The impending sunset of the TCJA provisions and potential legislative changes underscore the importance of proactive estate planning for high net worth individuals. By taking strategic actions now, individuals can maximize their current exemption opportunities, mitigate future tax liabilities, and ensure that their wealth transfer goals are achieved in a tax-efficient manner. As these changes unfold, consulting with estate planning professionals to tailor a strategy that aligns with your financial goals and the changing tax landscape becomes even more critical.

Please feel free to reach out for further discussion or clarification on these matters. Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!