Without legislation to prevent it, the sunsetting of current estate tax laws at the end of 2025 will dramatically reduce the federal estate tax exemption from $13.61 million per person in 2024 to approximately $7 million in 2026 (this includes adjustments for inflation). This change would affect many high net-worth individuals and families, likely exposing many more estates to federal estate taxes.
It is impossible to predict whether legislation will prevent the sunset. Even so, it is important for professional advisors to prepare for client discussions and start considering estate planning strategies now, particularly techniques that incorporate multi-generational gifts and charitable planning.
For a client who is charitably inclined, making larger lifetime gifts to charity and arranging for charitable bequests will help reduce the client’s taxable estate because of the charitable estate and gift tax deduction. Donor-advised, field-of-interest, designated, unrestricted, and endowment funds at Rose Community Foundation are flexible and effective recipients of both lifetime and estate gifts.
For some clients, you may wish to begin exploring a comprehensive, multi-generational wealth transfer plan, potentially using key tax-planning vehicles such as:
Charitable lead trust
Charitable lead trusts (CLTs) may be particularly effective in the current environment. These trusts can provide income to your client’s fund at Rose Community Foundation for a set period of time, with the remaining assets passing to family members. Right now, the higher exemption allows for potentially significant initial funding of such trusts. This is because the value of the remainder interest counts toward the client’s estate and gift tax exemption.
Multi-generational donor-advised fund at Rose Community Foundation
Alongside a charitable lead trust or even a generation-skipping trust, or as a standalone, a client can establish a donor-advised fund at Rose Community Foundation. This can function much like a family foundation, with successive generations serving as advisors and recommending grants from the fund. DAFs can be an important vehicle to carry on a tradition of supporting the causes that have been most important to your client during their lifetime. The team at Rose Community Foundation can provide strategy in multigenerational giving, along with overall expertise in place-based philanthropy.
While you should always encourage your clients to work with their trusted advisors, reach out to our team at Rose Community Foundation to help achieve your clients’ long-term charitable goals, even amid uncertainty concerning the estate tax laws.