Seize the Opportunity: Expert Guidance Essential as Estate Tax Exemption Sunset Approaches

By: Christopher Burns , Scott Emery , Brigitt Orfield | June 13, 2024
Gift Tax, Taxes

Only hard work gets you here

The current federal estate and gift tax exemption amounts are scheduled to be more than cut in half from in excess of $14,000,000 to less than $7,000,000 due to the sunsetting of tax breaks on December 31, 2025. For high-net-worth individuals, the time to plan for these changes is now. Partnering with a skilled estate planning team is crucial to navigate these changes effectively.

Understanding the Impending Changes

Currently, individuals can shield up to $13.61 million from federal estate and gift taxes. This amount is indexed for inflation and is anticipated to increase to more than $14.0 million in 2025. As noted above, this favorable exemption sunsets on December 31, 2025, and returns to a smaller federal estate and gift tax exemption forecast to be less than $7.0 million.

Minnesota’s estate tax exemption remains at $3.0 million with no gift tax.

Strategic Approaches to Consider

  • Utilize Spousal Limited Access Trusts (SLATs) (also known as Spousal Lifetime Access Trusts): SLATs are sophisticated tools that allow one spouse to utilize their exemption in the year assets are transferred to the trust while granting the other spouse limited access to trust assets, should access be necessary. This strategy must be tailored to individual circumstances, with a careful selection of appropriate assets, and precisely crafted to withstand IRS scrutiny.
  • Proactive Gifting: With exemptions at levels experts predict are unlikely to return, individuals with taxable estates should consider making significant gifts to non-spouse beneficiaries now. Often an even better tool is to make gifts to irrevocable trusts for beneficiaries. In the last five months, we have had many clients gift (either outright or in trust) cash, appreciated stock portfolios, life insurance, and real estate to such trusts effectively utilizing a sizable portion of the current federal gift tax exemption. Still other clients have chosen to gift interests in family businesses and effectively employing appropriate valuation discounts for things such as minority interest or lack of marketability (following a qualified appraisal by a certified appraiser), to best leverage the value of the gift, or using certain other more complex trust strategies.

The different strategies all involve removing the value of assets as well as future appreciation, from an individual’s estate, minimizing (to the extent possible) federal and state estate tax.

The Importance of Timing and Professional Insight

  • Timing of Actions: The strategic timing of asset transfers is critical to avoid numerous potential IRS challenges. Of particular concern with the SLAT strategy are concepts known as the step transaction doctrine and the reciprocal trust doctrine. Our team services clients by providing guidance on these issues, other case law and relevant Internal Revenue Code sections and applicable regulations. Unfortunately, we cannot predict the future and foresee all changes on the horizon, but we can help clients be proactive and as prepared as possible.
  • Complex Asset Valuations: Transferring business interests or real estate requires accurate and defensible valuations. We work with expert appraisers to do everything we can to make sure that any appraisals obtained meet IRS standards. When our clients face audits, our team has successfully secured favorable results for estate and gift tax audits.
  • Legislative Monitoring: It is important to stay informed about potential tax law changes and meet with estate planning and financial advisors on a regular basis. Estate planning is an evolving field, and what works today may need adjustment tomorrow.

Act Now

With the sunset of the current estate and gift tax exemptions on the horizon, now is the time to act to protect and preserve your wealth. Professional guidance is not just advantageous—it is indispensable. Henson Efron can provide the necessary knowledge to navigate complex regulations, develop personalized strategies, and help mitigate risks. By taking strategic actions now, you can ensure that your estate plan aligns with both your personal and financial goals, as well as the impending changes in the tax landscape.

Christopher Burns
My clients receive my undivided attention. I focus on learning your story and understanding your specific needs. With a broad base of legal knowledge, I will thoughtfully consider your issues, identify your options, and strategically use the right tools to accomplish your goals. With over 20 years of experience, I bring considerable expertise in the following areas: estate planning: planning and preparation of wills, revocable...
Scott Emery
As a naturally curious person, I want to first understand the goals and concerns of my clients and their perspective of a matter. That way, I can deliver relevant information and provide legal counsel in a meaningful way. I bring a problem-solving orientation to advise clients on practical solutions to help them achieve their goals and resolve issues. I represent individuals and businesses across major...
Brigitt Orfield
I feel privileged to assist with your estate planning and grateful to be allowed into your life. Experiencing a variety of life events with clients builds trust, and I am proud of the long-standing relationships I have developed over the past 23 years. I work closely with individuals and families to plan for the transfer of wealth during their lifetimes and upon death with the...