COLLEGE PLANNING | ESTATE PLANNING | INSURANCE | INVESTING | PORTFOLIO SPOTLIGHT | REAL ESTATE | TAX PLANNING
A Crucial Window For Estate Planning
Exemption amounts under the Tax Cuts and Jobs Act are set to expire , making now an essential time for clients to revisit their estate plans .
By Daniel F . Rahill
THE TAX CUTS AND JOBS ACT OF 2017 ( TCJA ) brought about substantial changes to the tax landscape , significantly increasing the lifetime estate and gift-tax exemption amounts ($ 13.61 million for individuals and $ 27.22 million for married couples ). However , these exemption amounts are set to expire on January 1 , 2026 , and — absent new legislation before then — will revert to approximately $ 7 million for individuals and $ 14 million for married couples , subject to inflation adjustments .
This pending reduction creates a “ use it or lose it ” scenario for individuals and families with taxable estates , and failing to capitalize on the current exemption could result in a substantial financial impact . Given the federal estate tax rate of 40 % and an expected exemption reduction of $ 7 million , this reversion would result in a tax liability of up to $ 2.8 million per individual or $ 5.6 million for a married couple transferring their estate to heirs .
The IRS has clarified that benefits used under the current exemption won ’ t be subject to future reduction or “ claw-back ,” meaning that proactive estate planning can lock in a permanent tax advantage , making now an opportune time to act .
Planning For Future Wealth
Contrary to common belief , the benefits of estate planning aren ’ t exclusive to those with massive amounts of assets above $ 20 million . A couple that doesn ’ t seem to warrant estate planning help , who have , say , only $ 10 million , could see their assets grow well beyond the future exemption thresholds when investment returns are compounded over time . Historically , assets , such as those tracked by the S & P 500 , have seen an average annual return of 7.3 % over the past 30 years . Such a rate of return could double an estate ’ s value every decade . So estate planning is imperative for those who may not currently exceed the exemption but may in the future .
Sports fans have no doubt heard the famous quote often attributed to hockey legend Wayne Gretzky : “ Skate to where the puck is going to be , not where it has been .” The same philosophy applies to estate planning — don ’ t plan based on where the estate stands today ; create a plan for where the estate will likely be in the future .
Strategic Estate Planning For The Affluent
For your clients in higher wealth brackets , specifically those with estates worth more than $ 20 million , estate planning becomes even more critical as 2026 approaches . The scheduled reduction of the estate and gift-tax exemption underscores the need for meticulous planning , particularly for those whose assets far exceed the current $ 27.22 million exemption for married couples .
56 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2024 WWW . FA-MAG . COM