Wealthy Investors Consider Estate Planning Amid Potential Tax Changes #

Current Estate Tax Exemptions #

Under current law, individuals can transfer up to $13.61 million (and couples can send up to $27.22 million) to family members or beneficiaries without owing estate or gift taxes. However, this benefit is set to expire at the end of 2025.

Increased Urgency for Estate Planning #

The tightening presidential race has sparked a wave of tax planning by ultra-wealthy investors, particularly due to concerns about a potential increase in estate taxes. The scheduled expiration of the generous estate tax provision has taken on new urgency as the odds of a divided government or Democratic president have increased.

Potential Changes in Estate Tax Exemptions #

If the current benefit expires, the estate and gift tax exemption will fall by about half. Individuals will only be able to gift about $6 million to $7 million, and couples will be limited to $12 million to $14 million. Any assets transferred above these amounts will be subject to a 40% transfer tax.

Considerations for Wealthy Families #

Wealth advisors suggest that clients consider various factors when making gift decisions, including:

1. Family dynamics and personalities
2. Long-term financial security
3. Psychological comfort with large gifts
4. Readiness of beneficiaries to receive substantial amounts

Flexible Gifting Strategies #

To address concerns about premature gifting, families can consider flexible strategies such as:

1. Gifting to a spouse before transferring to children
2. Setting up trusts that distribute money over time
3. Structuring gifts to reduce the risk of “sudden wealth syndrome” for beneficiaries

Timing and Execution #

Advisors emphasize the importance of timely action, as processing gifts and setting up trusts can take months. There is a risk of being left stranded if families wait until after the election to begin the process.

Caution Against Rushing #

While timely action is important, rushing can lead to potential issues with the IRS. Careful planning and execution are crucial to avoid triggering unexpected gift taxes or other complications.

Broader Tax Considerations #

While the estate tax exemption sunset is the most pressing concern, wealthy clients are also inquiring about other potential tax changes, including higher capital gains and corporate taxes, as well as the possibility of taxing unrealized gains.

As the political landscape continues to evolve, ultra-wealthy investors are increasingly focused on estate planning strategies to navigate potential changes in tax laws and preserve their wealth for future generations.