Howard Sharfman
In an election year, estate planning can easily become a source of undue anxiety since a change of administration and control of Congress could lead to changes in the tax code.
The proposals from both Democrats and Republicans have led to concerned clients reaching out to us to ask if it's time to take action now. While proposed legislation does not warrant wholesale changes to estate plans, looming legislative changes, which we will discuss, may merit action.
Any proposal will live or die on support from legislators. Frankly, we don’t feel it is likely a divided Congress will enact major changes before the election. Neither party wants to hand the other a legislative victory, especially in a presidential election year. The top priority for most lawmakers right now is to focus on their own election campaigns, address national crises and avoid government shutdowns. Throughout our careers, we have never seen this environment produce the bipartisan cooperation necessary to enact major changes to tax laws.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sunset of tax exemptions coming up fast
However, we still think it pays to consider how the candidates’ proposals would influence income and estate taxation. The current federal estate and gift tax lifetime exemption of $13.61 million is set to sunset on December 31, 2025, and the exemption will revert to $5 million adjusted for inflation from 2010, or likely around $7 million, something President Joe Biden supports, though he has decided not to pursue the Democratic nomination. Additionally, there are talks of increasing the top marginal income tax rate and taxing capital gains as ordinary income for high earners.
On the other side of the aisle, former President Donald Trump’s proposals include extending the gift/estate tax exemption and increasing income tax cuts. These proposals create a confusing tableau for individuals trying to plan their estates effectively.
Although post-election scenarios vary widely, the 2026 sunset of the current tax exemptions is on the horizon, and individuals should consider utilizing their available gift tax and estate tax exemptions now in case they are reduced. If clients are willing and able to utilize the current gift exemptions, now is the time. Do not wait until December 2025, as an eleventh-hour decision will not allow for proper consideration and planning and may not be enough time to get it done.
The gift exemption could be used by giving away cash, securities or even a home. The gift could be made to a trust for children so they don’t get immediate access or control and to protect the assets from third parties. One should consult a lawyer for advice about the trust terms and flexibility, which can vary widely, as well as the trustees and in which state to establish the trust.
Innovative insurance options in the works
In this environment of uncertainty, the insurance market has responded with innovative solutions to address the potential 2025 sunset of current estate tax provisions. Notably, a proposed new product would enable an individual to buy $5 million in survivorship life insurance with an option to double this amount without additional medical screening if the tax exemptions revert to lower amounts in 2026.
The reality is that even if the pendulum swings in one direction, it will eventually swing back. By leveraging strategic insurance products and keeping informed about tax law proposals, individuals can ensure that their estate planning strategies are robust and adaptable. As always, consulting with experienced professionals who can provide personalized advice based on the latest developments and individual circumstances is crucial.
Related Content
- How Gig Workers Can Prepare Their Estate and Financial Plans
- Estate Planning and the Legal Quirks of Retiree Cohabitation
- Estate Planning Amid Family Estrangement: Limiting the Fallout
- Three Overlooked Benefits of Estate Planning
- Estate Planning and Unequal Inheritances: Talking Is Key
-
Are Tariffs and the ‘Pumpkin Spice Tax’ Coming for Your Fall Coffee Budget?Food Taxes Inflation pressures, tariffs, and talk of the so-called 'pumpkin spice tax' have some wondering about rising coffee prices.
-
Can President Trump Fire Fed Governor Lisa Cook?Markets hate uncertainty, especially when it comes to monetary policy and interest rates, and questions about the Fed are compounding.
-
I'm a Wealth Adviser: If You're a DIY Investor, Don't Make These Five MistakesEven though you may feel confident because of easy access to investing information, you may be making mistakes that could compromise your long-term performance. Here's what you should know.
-
Building a Business That Lasts: The Critical Steps to Avoid Blunders'Another Way' author David Whorton offers advice on how to build an 'evergreen' business that endures by avoiding common pitfalls that can lead to failure.
-
I'm a Financial Pro: Why You Shouldn't Put All Your Eggs in the Company Stock BasketLimit exposure to your employer's stock, sell it periodically and maintain portfolio diversification to protect your wealth from unexpected events.
-
How Will the One Big Beautiful Bill Shape Your Legacy?The One Big Beautiful Bill Act removes uncertainty over tax brackets and estate tax. Families should take time to review estate plans to take full advantage.
-
Should You Claim Social Security Early or Late? A Financial Adviser Weighs InThere isn't a wrong age to start claiming Social Security, but there are factors that everyone should consider to avoid leaving money on the table.
-
Three Things Financially Confident People Do, From a Pro Who KnowsIf you have any worries about your retirement future, take back control with these three tips.
-
How Much Do I Need to Retire? A Financial Professional Breaks Down Your OptionsWhat it all boils down to is will you be comfortable in retirement? Some people may rely on formulas, while others just aim for $1 million nest egg.
-
Despite Our Grumbles, America Still Delivers on the Dream: Perspective From a Financial Pro Who's Seen StuffSome of us might complain about the state of our nation (and those concerns are legit), but America still offers unparalleled opportunities and mobility that many people around the world only dream about.
