Many of the provisions contained in the current tax law are set to expire on Dec. 31, 2025, signaling an immediate need for individuals to reassess their existing estate plans to maintain long-term tax efficiency. Failure to engage in planning now can result in potentially higher taxes on income and long-term capital gains and undue exposure to estate taxes in the future.
The Tax Cuts and Jobs Act of 2017 overhauled the tax code and ushered in welcome but temporary changes for individuals during tax years 2018 through 2025. Among these generous provisions are 1) a doubling of the federal estate tax exemption, 2) reduced ordinary income tax rates with expanded tax brackets, and 3) a change in the brackets used to determine individuals’ taxes on long-term capital gains and qualified dividends. While it is unknown whether Congress will preserve these benefits beyond 2025 or enact new legislation, taxpayers should consider alternative strategies to help them protect and preserve their wealth today and for future generations.
For example, individuals at all income levels can expect higher taxes in 2026 when the ordinary income tax brackets are set to rise to a top rate of 39.6 percent from the current rate of 37 percent. At the same time, the law calls for long-term capital gains, which top out at 20 percent, to be tied to these higher income tax rates in 2026. Additionally, individuals today in 2024 can shield as much as $13.610 million from federal estate tax, or twice that amount for married taxpayers filing joint tax returns. Assets exceeding these amounts are subject to an estate tax of 40 percent. However, on Jan. 1, 2026, the exemption is set to be reduced to its 2017 level of approximately $6 million after accounting for inflation. This means a person who passes away in 2024 can protect an additional $7.610 million of their estate from tax than if they were to pass away just two years later.
Thankfully, you can implement some estate planning tools today to take advantage of the current TCJA provisions. Depending on your unique circumstances, needs and goals, consideration should be given to various trust instruments and gifting strategies that essentially remove appreciating assets from your taxable estate and, in some cases, allow you to retain some level of control over those funds.
Some examples include grantor-retained annuity trusts (GRATs), spousal lifetime asset trusts (SLATs), irrevocable life insurance trusts (ILITs) and charitable remainder trusts (CRTs). You may also leverage today’s generous exemptions by making annual tax-fee gifts of up to $18,000 to an unlimited number of individuals. Alternatively, you may pay up to $18,000 of another person’s expenses directly to a medical provider or educational institution without incurring gift tax. Or, you may gift an unlimited amount tax-free to your spouse provided you are both U.S. citizens.
Because U.S. tax laws are always subject to Congressional action and changing IRS guidance, the best way to keep your estate plan up to date is to meet regularly with your financial advisors.
About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Sean Deviney, CFP®*, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
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Posted on January 11, 2024