As we approach the end of 2024, advisors must guide clients through the intricacies of tax and estate planning strategies. That means taking advantage of current economic opportunities while preparing for potential shifts based on political developments. It also means leveraging today’s favorable conditions, including the recent presidential election, which could significantly alter the estate planning landscape. Let’s explore how to craft strategic plans that will allow clients to navigate these complexities and ensure long-term success.
Leverage Low Interest Rates
The Federal Reserve’s decision to (finally) start cutting interest rates has created an advantageous environment for wealth transfer strategies. Lower interest rates make grantor retained annuity trusts, intra-family loans and charitable lead trusts especially appealing, as they allow clients to pass future asset appreciation to heirs with minimal tax consequences. This is particularly beneficial for high-net-worth individuals who own privately held businesses. With valuation discounts for lack of control and marketability, clients can transfer business interests at a significantly lower taxable value, securing tax-efficient transfers.
Smart advisors are urging clients to take immediate action, locking in these favorable valuations while rates are low. By initiating wealth transfer strategies now, clients can reduce their taxable estates and minimize the impact of any future tax hikes. This is particularly effective for assets expected to appreciate, such as shares in a family business or investment real estate, where future gains can be moved out of the client’s estate while currently undervalued. Acting promptly ensures clients can leverage these economic conditions before potential changes, such as rate increases or political adjustments, disrupt the current framework.
Avoid Last-Minute Mistakes
With the end of the year fast approaching, don’t leave estate planning to the last minute. The key is early action, and advisors should guide clients to strategize now, maximizing annual gift exclusions, considering larger lifetime exemption gifts and strategically deploying charitable contributions. Transferring appreciating assets today allows clients holding privately held business interests to benefit from discounts for lack of control and marketability, significantly lowering taxable values.
Year-end planning should be comprehensive, including detailed evaluations of client portfolios, potential tax liabilities and strategic opportunities. By proactively managing these elements, clients can avoid the pitfalls of rushed, last-minute decisions. This approach also allows for incorporating advanced planning tools like family limited partnerships and GRATs, which can provide significant tax advantages when executed thoughtfully. An early, proactive approach ensures that estate plans are not only efficient but also flexible, allowing clients to make adjustments as political or economic landscapes change.
For clients, the message is clear: act now to take advantage of the existing exemptions. By being proactive rather than reactive, you can help clients minimize tax exposure by using tools like GRATs, FLPs and charitable trusts to lock in current valuations. This proactive approach is essential, regardless of the election’s outcome, as it maximizes tax-saving opportunities and builds in flexibility for future adjustments.
Expectations for the Trump Administration
President-elect Trump’s administration will likely continue advocating for policies that favor lower taxes and maintain, or even enhance, the historically generous estate tax exemptions. This would create advantageous conditions for wealth transfers, although implementing any major tax cuts would still require congressional approval.
With rising federal deficits, however, there are limitations to how far tax reductions can go without addressing fiscal concerns. The growing budget deficit poses a challenge, potentially limiting the scope of new exemptions or other tax-friendly initiatives. Whenever I talk to advisors, I urge them to take advantage of the current exemption levels while they last, focusing on strategic gifting of appreciating privately held assets.
Tools such as GRATs, FLPs and charitable trusts can help clients lock in these benefits, transferring wealth efficiently and effectively. The key is to maintain flexibility in estate plans, allowing clients to adapt to any shifts in legislative priorities or economic constraints. Planning ahead ensures clients can maximize tax-saving opportunities, even if the administration’s ambitions face limitations due to budgetary pressures.
Estate Tax Exemption Sunset
The estate tax exemption, currently set at $13.61 million per individual ($13.99 million effective Jan. 1, 2025), is scheduled to decrease significantly starting in 2026 unless new legislation extends it. This presents a critical window for clients to make substantial transfers to heirs without triggering significant estate taxes. Advisors should prioritize early action, especially for clients who own privately held businesses that can benefit from valuation discounts for lack of control and marketability. Employing strategic tools such as GRATs, CLTs and outright gifts can help clients efficiently transfer wealth while securing favorable tax treatment. By acting now, your clients can lock in today’s conditions, minimizing the risk of future tax liabilities and ensuring that more of their wealth is preserved for future generations.
Prepare Now
Strategic estate planning is about more than just current tax laws; it’s about anticipating change and maintaining flexibility. Whether leveraging low interest rates, preparing for political shifts or maximizing today’s favorable exemptions, advisors who take a proactive approach can help clients navigate the complexities of estate planning confidently. By preparing clients now, advisors will ensure that their clients’ wealth is efficiently transferred, preserved and ready for whatever changes may arise.
Who wouldn’t vote for that?
Anthony Venette, CPA/ABV, is a Senior Manager in Business Valuation & Advisory at DeJoy & Co., based in Rochester, NY.
