High Net Worth Estate Planning

High net worth families face unique estate planning challenges that demand sophisticated approaches. High net worth families often hold a large portion of their wealth in illiquid business interests and real estate. To avoid “fire sales” to cover estate taxes, it is wise to plan for adequate liquidity to cover these expenses in advance.

Because their estates exceed the gift and estate tax exemption, high net worth individuals often make gifts during their lifetime to reduce their taxable estate. Unlike outright gifts, gifts to irrevocable trusts lets you determine how the gifted assets should be held and distributed.

While married clients can avail of the marital deduction to reduce their estate taxes the marital deduction may not eliminate estate taxes entirely as estate taxes may still be due the time of the surviving spouse’s death.

Important Planning Consideration for High Net Worth Families: Sunset of Temporary Increased Federal Exemption Amount

The federal estate and gift tax exemption is the amount that an individual can transfer to another individual tax-free either during lifetime or at death before a 40% estate tax is imposed. All transfers in excess of the exemption ($13.61 million in 2024) are taxed at the top rate of 40%.

In 2017, the Tax Cuts and Jobs Act (TCJA) raised the exemption amount from $5 million to $10 million per person. The $10 million exemption amount is adjusted annually for inflation. The inflation-adjusted exemption amount for 2024 is $13.61 million per person.

The increased exemption amount is temporary and is scheduled to sunset such that it will return to $5 million per person (plus an adjustment for inflation) effective January 1, 2026.

The Treasury Department has issued regulations confirming that individuals who take advantage of the increased gift tax exclusion (or portability amounts in effect from 2018 to 2025) will not be adversely impacted when TCJA sunsets on January 1, 2026. But, the regulations also set forth a “use it or lose it” rule: If an individual dies after 2025 and did not make gifts between 2018 and 2025 in excess of the sunsetted exemption amount in effect at his or her death, the excess exemption is lost.

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