Wealth Planning

Estate Planning Opportunities: Navigating the Tax Cuts and Jobs Act Sunset

June 7, 2024

Estate Planning Opportunities Navigating the Tax Cuts and Jobs Act Sunset

When it comes to taxes, planning ahead is essential. With the sunsetting of the Tax Cuts and Jobs Act (TCJA) on the horizon, navigating the ever-changing tax landscape is crucial for effective estate planning. The key provisions of the TCJA are set to expire on Jan. 1, 2026, making it important to capitalize on existing tax benefits through strategic planning and informed decision-making.

The TCJA reshaped the tax code, significantly altering the estate planning landscape. Under the TCJA, the unified lifetime estate and gift tax exemption amount increased to $10 million per person, adjusted annually for inflation. As of May 2024, this exemption is $13.61 million per individual (or $27.22 million per married couple). However, this increase is temporary. The TCJA’s “sunset” provision is scheduled to expire on Jan. 1, 2026, reducing the exemption to the pre-TJCA amount of $5 million, also adjusted for inflation.

Federal Estate Tax Exemption: 1997-2028

SOURCE: Preparing for the TCJA Sunset in 2026 | Charles Schwab

Estate planning opportunities before the sunset

Estate planning is a fundamental pillar of financial management, ensuring the orderly transfer of assets and the preservation of wealth for future generations. Several strategies stand out as valuable tools in today’s dynamic environment, each offering distinct advantages.

The following methods offer a spectrum of benefits, including asset protection, tax minimization and the ability to maintain flexibility and control over one’s assets:

Defective Grantor Trusts (DGTs) are irrevocable trusts intentionally structured to be “defective” for income tax purposes. Because the grantor retains certain powers over the trust, any trust income is taxable to the grantor (rather than the trust or the beneficiaries). However, assets transferred to the trust are deemed to have been moved out of the grantor’s taxable estate and thus will not be subject to estate tax at the grantor’s death. Since the grantor pays all income taxes earned by the DGT, the trust assets can continue to grow “tax-free” outside the estate. Additionally, by using their personal funds to pay income taxes on behalf of the trust, the grantor can continue to reduce the value of their estate over time.

Family Limited Partnerships (FLPs) enable individuals to transfer wealth to their loved ones without relinquishing centralized management of family funds. The general partner controls and manages the partnership, while the limited partners’ pooled assets allow them to capitalize on economies of scale. After contributing assets to a limited partnership, individuals can transfer partnership interests to their friends or family members, typically by gifting or selling the interest to such DGTs set up for their intended beneficiaries. Due to the limited partners’ lack of control (and often, a lack of marketability resulting from transfer restrictions), it may be appropriate to discount the value of the transferred limited partner interest(s) as well.

Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by an individual to benefit their spouse. During the beneficiary spouses lifetime, they may receive trust distributions for health, education, maintenance or support. After the beneficiary spouse’s death, the trust assets pass to the heirs (usually the children and grandchildren) free of estate tax. The SLAT structure may appeal to a married client interested in wealth transfer, as the client can use their increased lifetime exemption while ensuring their spouse will continue to have adequate access to assets after the client passes away. However, the SLAT must be administered carefully; if the IRS determines that the grantor spouse has benefitted from the SLAT in any way, all the trust assets could be brought back into the grantor’s estate.

While these methods are sophisticated strategies for asset protection and tax minimization, if you are just starting out on your estate planning journey, our Estate Planning 101: Back to Basics article covers the important documents you will need for an estate plan.

Alternative gifting avenues that preserve the Lifetime Exemption amount

Further opportunities exist within estate planning that do not diminish the lifetime exemption amount. These exceptions include:

  1. Annual exclusion per person: $18,000 ($36,000 per couple).
  2. Tuition payments: Payments made directly to educational institutions for qualifying education costs are not subject to transfer tax.
  3. Medical expenses: Payments made directly to medical providers for qualifying medical expenses are not subject to transfer tax.
  4. Charitable contributions: Payments to qualifying charities.

The TCJA of 2017 introduced a shifting landscape for estate planning. Through strategic planning and decision-making, individuals can capitalize on existing tax benefits before the sunsetting provisions of the TCJA take effect. To navigate these tax changes effectively and achieve your tax planning and estate planning objectives, contact your wealth manager or estate planning attorney to discuss your specific circumstances and how to best attain your desired estate planning goals.

Nayan Lapsiwala
Nayan Lapsiwala

Director in Wealth Management, Partner

Nayan brings his knowledge of economic market data and financial planning acumen to each client relationship. His natural ability to listen and synthesize complex financial situations into actionable plans paired with his desire to get to know each client’s set of unique circumstances, make him a powerful partner to work with in wealth management.

Nayan came to Aspiriant in 2017 as part of Stanford Investment Group, which he joined in 2007. In addition to his role as a Wealth Advisor at SIG, Nayan was a key member of the Investment Research and Portfolio Management teams.

Before entering the investment advisory industry, he worked at ICICI Lombard General Insurance and IDBI Bank as a Marketing Coordinator on their respective business development teams.

Nayan is a proud recipient of “Outstanding Graduate Student Award — Master of Science in Finance” from Ageno School of Business at Golden Gate University. He earned a Bachelor of Science degree in computer science from South Gujarat University in India.

He is a Certified Financial Planner™ (CFP®), Chartered Financial Analyst® (CFA), Chartered Alternative Investment Analyst (CAIA®) and a member of the FPA Association, CFA Institute, and CAIA Association.

Nayan and his wife live in San Jose, Calif., with their daughter. In his free time, he enjoys spending time with family and friends, traveling, good food, and watching basketball, cricket and tennis.

Lina Sanchez
Lina Sanchez

Senior Manager in Wealth Management

Lina joined Aspiriant in 2022 and serves as a Senior Manager in Wealth Management in Silicon Valley. She has more than a decade of experience within the financial services industry and serving high-net-worth individuals and families. In addition to her client service responsibilities, Lina is a member of Aspiriant’s Women Taking Charge and Liquidity Events committees and serves as a subject matter expert on marriage and divorce for the firm.

Prior to joining Aspiriant, Lina was a senior wealth advisor for an independent wealth management firm based in Plantation, FL. She also served as a financial advisor for Merrill Lynch Wealth Management based in Florham Park, NJ.

Lina earned a Bachelor of Arts degree in Economics and a Bachelor of Science in Business Administration, with a concentration in International Business and Marketing, from Montclair State University and graduated cum laude. Additionally, Lina obtained her Series 7, 66, and 2-15 licenses. She is also a Certified Exit Planning Advisor (CEPA®), a Certified Divorce Financial Analyst (CDFA®) and a Chartered Special Needs Consultant (ChSNC®).

In her free time, Lina volunteers for several organizations that promote financial literacy in addition to taking on different pro-bono projects. She also likes to travel and spend time with family and friends – splitting her time between New York and Florida.

Rachel Lee

Fathom Author

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