High net worth individuals should start planning for the potential sunset of existing estate tax limits on December 31, 2025. The so-called “Trump” tax law of 2017 set new higher limits, (approx. $12.9M for 2023), but with a catch—that all limits revert to prior law after December 31, 2025 ($5M, plus inflation adjustments).
For this sunset to be changed, Congress will have to act. And based upon recent political conflict within Congress, “action” has been extremely rare. If Congress does nothing, the reversion will occur. There is one more election cycle to go through in 2024, and those results could have significant effect on what Washington decides to do with this issue.
Plans today can allow a taxpayer to utilize the current higher exemption amounts, so that even if limits revert to lower limits, the current transfers are not subject to gift or estate tax. Transfers can be done in many ways. There are literally hundreds of combinations of planning devices that one could utilize with a wide range of complexity. Planning should take in account not only the size of one’s estate, and their family situations, but also the taxpayer’s appetite for complexity after the planning is executed.
Cost Vs. Benefit and The Timeline
The old saying, “Penny-wise, pound foolish,” is very applicable here. The planning process comes with a cost, and this would be thousands of dollars. But the potential costs for not planning at all might be measured in millions of dollars and could cause a family and their business extreme hardship to manage an inevitable demise. The federal estate tax rate is currently set at 40%. You can avoid most of the difficulties with a sound plan— a plan designed for you now.
Planning should be done carefully, and designed specifically for you, your family, your business concerns, and all the related parties effected. This takes time and there are many considerations and alternatives that should be examined before any plan is implemented.
We suggest clients take action that may extend a year or more from start to finish. Because we now have less than three years until the sunset of current federal estate tax provisions, the time to act is fast approaching, it is now upon us.
Watch Out NYS Residents!
Taxpayers who live in New York State (NYS) also have a totally different level of concern, that is, managing the NYS estate tax complications. In NYS there is a separate system, separate exemption limits (only about $6.1M), a NYS tax “cliff” for estates over $6.4M, a “claw-back” of gifts made three years prior to death, no carryover of unused NYS exemptions to a surviving spouse and ways that NYS can attach their estate tax to non-residents when assets are deemed to be NYS situs assets. The NYS tax rates quickly get to 14%, so this is not an area to be over-looked.
If you have any questions or are interested in learning more about this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts today.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
