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Election Uncertainty Drives Wealthy Americans to Estate Planning Strategies with Advisors

Election uncertainty is sparking wealthy Americans to secure estate plans. As the presidential race intensifies, wealthy Americans seek advice from estate lawyers. The concern? A potential significant increase in estate taxes after 2025 when the current tax cuts expire.

If the tax cuts are not renewed, the minimum taxable estate would drop significantly, affecting thousands more individuals. This change is likely with a Democratic-controlled Congress and Vice President Kamala Harris in the White House.

According to the Urban-Brookings Tax Policy Center, the number of estates subject to estate tax could nearly double in 2026 compared to 2025.

The question of whether it’s worthwhile to draft an estate plan based on undecided tax policies is a subject of debate. Financial advisors and wealth managers argue that, for many families, the cost of hiring them is justified. By making large lifetime gifts and setting up specific trusts for spouses or children, individuals can potentially remove millions from the amount subject to estate taxes.

These experts also emphasize that the window for making tax-saving moves is closing, urging families to consider trusts now if they’re interested. However, there are risks to setting up trusts unnecessarily, including capital gains taxes that wouldn’t apply to an outright inheritance.

Moreover, it needs to be clarified that the steps necessary for those below higher estate tax thresholds are unclear. While some Democrats in Congress support broader estate tax reforms, Kamala Harris has yet to take a clear stance on the issue, and her campaign did not respond to requests for comment. The Wall Street Journal reported that Amy Elliott, a lawyer from Danville, Indiana, recently helped her 77-year-old father establish an irrevocable trust. He contributed $1 million this summer and is holding off on adding more until after the election, waiting to see how tax laws might change.

Election Uncertainty Drives Wealthy Americans to Estate Planning Strategies with Advisors

Trump’s Tax Agenda: Pushing for Permanent Estate Tax Changes

Former President Donald Trump’s campaign has outlined a key fiscal policy goal:

  • Make the elevated estate-tax threshold permanent
  • Extend all other tax cuts from the 2017 Tax Cuts and Jobs Act

Political Landscape and Potential Outcomes:

In case of a Republican sweep: More ambitious goals might emerge, and complete repeal of the estate tax could become a distant yet conceivable possibility.

In a divided government: This proposal will likely become entangled in complex negotiations, and discussions will center around trillions of dollars in expiring tax cuts, expect intense debate and potential compromises. Implications: These proposed changes could significantly impact wealth transfer strategies and federal revenue. The outcome will depend heavily on the political composition of Congress and the White House after the election. 

According to the WSJ article, more families have established trusts in recent years to protect assets from creditors, divorce settlements, and maximize estate-tax savings. Individuals can pass on or gift up to $13.61 million without incurring estate taxes, a figure set to rise to $13.99 million by 2025 due to inflation, according to Wolters Kluwer Tax & Accounting. With strategic planning, married couples can double this exemption.

The top estate tax rate stands at 40%. Wealthy families can secure the current exemption by transferring assets now—whether outright or through an irrevocable trust—and save millions in future estate taxes. However, once assets are placed in an irrevocable trust, they leave your estate and control unless beneficiaries or a court agree to changes. 

Strategic Estate Planning in Uncertain Tax Times

Tim Starkey, a Morristown, N.J. financial planner, shares a recent client strategy: 

  • Client net worth: Approximately $50 million
  • Action taken: Established irrevocable trusts for client and spouse
  • Motivation: Anticipating tax cut expirations and potential Democratic sweep in November
  • Trust funding: $24 million in private equity assets, with plans to add more as inflation adjusts the exemption
  • Starkey’s perspective: “We set up the foundation.”

Potential Policy Changes and Their Impact

Robert Keebler, a CPA from Green Bay, Wis., emphasizes the high stakes, particularly if Democratic proposals are enacted:

President Biden’s budget proposes:

  1. Curbing dynasty trusts (which currently allow multi-generational estate tax avoidance)
  2. Revising property valuation rules for trusts to limit discounts
  3. Changing trust rules that presently allow tax-free wealth transfers through income tax payments

The Harris campaign has expressed broad support for these Biden budget proposals.

If Your Net Worth Exceeds $7 Million (Single) or $14 Million (Married), Estate Planning is Essential

Some estate lawyers advise unmarried individuals with a net worth of at least $7 million and married couples with a net worth of $14 million or more to consider estate tax planning. This involves assessing age, asset ownership, and future wealth projections.

“It’s not just about your current financial situation,” says Aaron Burton, an estate lawyer in Denver. “You need to consider how your net worth might change over time.”

Additionally, individuals should weigh their personal giving goals against potential tax advantages. A CPA and financial planner, Ross Riskin, notes that while the timing might be favorable for tax purposes, it may not align with personal needs.

Setting up a trust requires careful planning. Sequentially creating them can be advantageous for married couples considering trust for each other. “You can establish the groundwork now and finalize the arrangements later,” explains Martin Shenkman, an estate lawyer in New York.

The Risk of Premature Action

However, acting before government policies are finalized carries significant risks. Many Americans made wealth transfer moves in 2012 to avoid potential estate tax increases, only to later regret their decisions.

Dawn Jinsky, an accountant and financial planner, recently advised a married couple in their mid-50s with a net worth of $35 million to reconsider an irrevocable trust. “They didn’t want to make a decision they might regret,” she says. They are now exploring other options, such as annual tax-free gifts.

Individuals can currently give up to $18,000 per year to unlimited recipients without incurring gift tax. These gifts do not count against the larger $13.61 million combined gift and estate tax exemption. The annual tax-free gift limit is expected to increase to $19,000 in 2025.

Potential Legislative Changes

It’s important to note that these tax rules could change. Senator Elizabeth Warren’s housing bill proposes reducing the annual gift tax exclusion to $10,000 and imposing a yearly cap of $20,000 on tax-free gifts. The bill also advocates reinstating a $3.5 million estate tax exemption and higher tax rates.

Conclusion 

As the election year approaches, concerns about potential changes to estate tax laws have prompted many individuals to explore strategies to protect their wealth. Trusts and lifetime gifts can be practical tools for mitigating the impact of potential tax increases. If you have any questions, please contact Huckabee CPA for a free consultation.   

WRITTEN BY
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Thomas Huckabee, CPA

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