Estate Planning Tips and Updates

Recent legislation provides unprecedented opportunities to minimize or avoid estate, gift and generation-skipping transfer taxes (GSTT). However, Congress giveth and taketh away, both through the planned sunset of the Tax Cuts and Jobs Act (TCJA) increased exemptions and through the recent changes to retirement planning in the Secure Act.

(Related: A Big IRA Question: Do I Change the Beneficiary Post-Secure Act?)

Help your clients navigate this uncertainty with the following planning tips.

1. Increased Estate Tax Exemption Amounts: Use ‘Em or Lose ‘Em

The current applicable exemption amount of $11.58 million each — $23.56 million per married couple — allows many of our clients to avoid transfer taxes altogether.

However, the rules require use of these amounts from the bottom up, not from the top down, and the applicable exclusion amount reverts to its prior inflation adjusted amount, say $6 million, on Jan. 1, 2026. If your client with a gross estate of $11 million previously made, say, $7 million of gifts, the rules eliminate any claw back of those gifts if death occurs in 2026. But your client has no applicable exclusion amount remaining per Example (1) in Treasury Regulations Section 20.2010-1(c)(2)(i). That is, after the sunset this client has a gross estate of $4 million and no remaining exemption.

According to that example, clients with gross estates exceeding approximately $6 million should consider implementing one or more strategies, including gifts and sales to grantor trusts, before the end of 2025 to ensure the full use of the disappearing exemption. This timetable also assumes that nothing changes between now and Jan. 1, 2026, a period that includes two presidential elections and four congressional elections. Use it or lose it, and use it sooner rather than later, to make sure your clients take full advantage of this opportunity.

2. Use of the Increased Generation-Skipping Transfer Tax (GSTT) Exemption

The TCJA also increased the GSTT exemption to $11.58 million each. This increase allows many of our clients to exempt transfers for several generations if not in perpetuity under the laws of certain states, but clients must intentionally draft trusts to establish legal situs in states like Nevada to take advantage of longer perpetuities periods.

Longer perpetuities periods mean avoiding additional estate, gift and GSTT taxes for longer periods, normally a net positive. But the valued advisor will include provisions to cause inclusion for succeeding generations; this utilizes additional exemption amounts and further protects assets from both “creditors and predators” and unnecessary taxation.

Although the automatic allocation rules may help, your clients should probably file gift tax returns to allocate GSTT exemption to any such transfers to ensure proper allocation. Timely filed gift tax returns including adequate disclosures of non-gift transactions (i.e., sales to grantor trusts) also start the applicable statute of limitations with respect to such transactions.

3. Annual Exclusion Gifts

Even with the increased exemption amounts, continued annual exclusion gifts (currently $15,000) remain an essential part of most estate tax reduction planning, removing the amount of the gift and future appreciation thereon. And, the tax-exclusive nature of the gift tax makes gifts more tax-efficient. However, use high-basis assets for giving where possible, as gifting during life costs the basis step-up at death in most cases. Finally, consider affirmatively allocating GSTT exemption to annual exclusion gifts to trusts. This does not always occur as one might think, or worse assume.

4. Basis Harvesting

The increased exemption amounts often mean clients with previous trust planning no longer face estate tax issues.