So let me begin, on behalf of the entire UTBF estate and trust team, by wishing everyone a very happy and healthy holiday season.
I’d also like to thank you all for being clients of the firm. It is an honor serving you (we now have multiple families where we are representing two and three generations!) and we look forward to many more years of advising you and the next generation about protecting your assets and preserving your family values and legacy.
And now, with all of that said, on to the end of year and 2025 business of estate planning.
As most of you know, the federal estate tax law is currently set to change radically at the end of 2025 and we have been working with many families to anticipate and to plan for that possibility.
However, the pending changes and estate planning landscape have recently changed with the election and it seems unlikely that radical changes will actually occur. However, the implications are more complicated than we can easily discuss here. So, we created a longer form article on gifting and estate planning that you can read. And get more detail. To get access, just go the end of this article.
The short version (way too simplified – if you need to update, speak to your advisers) is that the federal estate tax exemption is currently at historically high levels, ($13.61 million per individual or $27.22 million per married couple). This amount is set to increase in January of 2025 to $13,990,000 per individual. In 2026, the exemption is set to revert to an estimated $5 million per individual, adjusted for inflation, potentially subjecting many estates to significant tax obligations. However, following the election, its now highly likely that the large exemptions under current law may be extended.
We will keep you posted, but this situation gives us more time to thoughtfully do estate tax planning or liquidity planning and to do updates to estate plans that serve your interests and that are not related to or driven by federal estate taxes.
So here are a few ideas to consider for 2024 and 2025 and more detailed analysis is available for each idea.
1. Maximize Annual Gift Exclusions
In 2024, the IRS allows you to gift up to $18,000 per recipient without reducing your lifetime gift exemption. If you’re married, both spouses can contribute, totaling $36,000 per recipient. Gifting under this exclusion allows you to reduce your taxable estate gradually, while transferring assets to children, grandchildren, or other beneficiaries. Remember, to count for 2024, gifts must be completed by December 31.
2. Utilize the Lifetime Estate & Gift Tax Exemption
In addition to the annual exclusion, the lifetime gift tax exemption is $13.61 million per individual in 2024, with an inflation-adjusted increase to 13,990,000 in 2025. By making substantial gifts now, you can lock in today’s high exemption, which could reduce your estate’s taxable value significantly if asset values increase over time.
3. Contribute to 529 Plans for Education
529 college savings plans allow you to reduce your taxable estate while funding future education costs. Contributions qualify for the annual gift tax exclusion, and plan funds grow tax-free if used for qualified education expenses.
4. Establish or Update Trusts for Family Protection
Trusts can help protect assets and reduce estate taxes while allowing you to set specific provisions for how and when assets are distributed. Options like Dynasty Trusts and Intentionally Defective Grantor Trusts (IDGTs) enable long-term asset preservation with tax advantages.
Qualified Personal Residence Trusts (QPRTs) are particularly useful if you wish to transfer your home out of your taxable estate.
And, trusts established during your lifetime or even under your will can provide asset, creditor and divorce protection for your heirs.
5. Review Beneficiary Designations and Estate Documents
Designated beneficiaries on accounts like IRAs, 401(k)s, and life insurance policies override your will, making it essential to update these designations regularly. Year-end is an ideal time to ensure that your designated beneficiaries reflect your intentions. Additionally, review your will, power of attorney, healthcare directives, and other essential documents to verify accuracy and alignment with your goals.
6. Plan for Long-Term Care and Elder Law Concerns
If you or family members are over 65, consider long-term care planning to protect your assets from rising care costs. Strategies may include Medicaid planning, long-term care insurance, or asset protection plans, which can help ensure that the assets you’ve worked hard to build are preserved for your family. Consult an elder law attorney to explore these options, especially if qualifying for Medicaid benefits or nursing home costs is a concern.
Click here for more details on gifting and estate planning ideas for 2024 and beyond.
