All tools in the box should come into play for the changing world of estate planning over the next few years.
The estate tax exemption jumped almost $1 million for 2023 over this year’s amount, the result of recent IRS inflation adjustments. The Tax Cuts and Jobs Act (TCJA) of 2017 had already doubled the exemption for gifts between 2018 and 2025 – but that beneficial exemption will expire in 2026 unless Congress passes legislation to extend the law.
“Many estate planning professionals believe that Congress will act to eliminate the 2025 exemption sunset,” said Abbey Flaum, managing director and family wealth strategist at Homrich Berg in Atlanta. “Some maintain that this action will happen simply because the estate and gift exemption has never decreased, plain and simple. Others believe that members of Congress will act out of self-interest to avoid seeing the decreased exemptions affect their own pocketbooks. Still others maintain that the exemption sunset was included as one measure to pay for the Tax Cuts and Jobs Act.”
Michael Levy, partner in Crowe Tax Services in New York, recommended making a larger gift to individuals directly or through a trust structure. “Review your owned assets and consider which assets you would want to possibly gift,” he said, and “individuals would want to consider life insurance to offset state and federal estate taxes that may be due upon death.”
“Since use of one’s exemption is use it or lose it, gifting to irrevocable trusts is the popular plan of the day, and for married clients, the idea of gifting to irrevocable trusts which include the non-donor spouse as a beneficiary (a Spousal Lifetime Access Trust) is selling like hotcakes,” Flaum said.
Other techniques and trusts to consider for tax-efficient, pre-estate gifts, Flaum said, include the sale of assets to irrevocable trusts, the use of qualified personal residence trusts or charitable remainder trusts and the making of taxable gifts.
Once gifts to irrevocable trusts are completed, the donor/giver no longer owns or controls the gifted assets, but the assets will be available to provide for the donor’s family or other intended beneficiaries. “In essence, these individuals have gained a pre-funded inheritance,” Flaum said.
Strategies heading into 2023 also include gifting low value private company stock, closely held business interests with valuation discounts. “Family LLCs are still very popular in terms of gifting wealth to the next generation and also provide a means to family governance,” said Matthew Goodwin, a CPA and leader of Family Wealth Services at CBIZ Berntson Porter in Seattle.
Among other tools, qualified charitable distributions direct from IRAs of up to $100,000 can be used to great tax advantage; a donor-advised fund can also take deductible donations of cash, securities or other assets.
“Charitable gifts are also outside a family estate, so we do work with a lot of families on integrating income tax planning with estate planning and match those up to their charitable goals,” Goodwin said.