By Michelle D. Bennett, AIF®, CFP®, Executive Vice President, Newport Capital Group
2024 is a critical year for estate planning.
One key reason: Current estate and gift tax exemptions, established in the 2017 Tax Cuts and Jobs Act, are set to expire at the end of 2025.
Unless Congress acts to make current exemptions permanent between now and Dec. 31, 2025, they will revert back to much lower 2017 levels. The amount that individuals ($13.61 million) and families ($27.22 million) can gift tax-free will plummet by about 50% and estates valued above the exemption levels may be taxed at a rate as high as 40%.
Without veering into politics, it is important to acknowledge that ballooning fiscal deficits and ever-expanding U.S. government debt lower the odds of major tax cuts in the future. Estates may be viewed as a viable option to raise additional tax revenues to offset higher spending, which could mean lower exemption levels, higher top tax rates, or possibly other measures like eliminating the step-up provision in capital gains.
In short, the outlook for estate tax law is uncertain. And the best way to counter uncertainty is by having a plan.
In my view, it does not matter if your net worth is $1 million or $100 million. You’ve worked to create, grow and preserve wealth over time, and it is crucial that the wealth you’ve accumulated is passed along to your family or charities according to your wishes. Proactive estate planning not only establishes your wishes, it also formalizes and codifies them in a way that’s designed to mitigate tax liabilities and protect family wealth. It’s worth the effort.
At a minimum, I recommend that individuals and families have basic – but critical – estate planning documents in place: a will, health care directive and power of attorney. Wills determine how assets should be distributed and powers of attorney can designate trusted individuals to make health care, financial and/or property decisions on your behalf in the event you are no longer able. All of these documents should be reviewed at least once a year.
I also think most families should have a revocable living trust in place. This structure allows for assets to be transferred into a trust at death and it appoints a “trustee” to manage and/or distribute the assets and property according to your detailed instructions.
For individuals and families who have already done some amount of estate planning, an important question is whether all of the decisions made in the plan were implemented correctly. For example, the family may have decided that certain trusts were appropriate for the estate plan. But were the trusts actually created? And did the family follow through in titling the appropriate assets to that trust?
These are questions that a thorough, annual estate plan review can answer.
Estate planning can be complex and time-consuming, which makes it easy to put off. But that’s where partnering with a knowledgeable financial planner can make a major difference. You can ensure efficiency by working with someone who knows how to guide the process along. And it’s also important to find someone willing to partner with your trusted advisors – like trust attorneys and CPAs – to help navigate complexities and develop effective strategies.
Perhaps the most important takeaway is that the process of estate planning should not be viewed as transactional. Rarely can an individual or family establish an estate plan and never have to review it again. The unexpected can (and often does) happen. Laws can change, family dynamics can change, and financial assets, objectives and aspirations often change.
Estate plans almost always have to change with them.
Michelle Bennett, CFP serves as the executive vice-president of Newport Capital Group.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, information presented in this presentation is believed to be factual and up to date, but Newport Capital Group, LLC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.
This presentation includes forward-looking statements and opinions, including descriptions of anticipated market changes and expectations of future activity. Forward-looking statements and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. In addition, all expressions of opinion are subject to change without notice in reaction to shifting market conditions. Therefore, undue reliance should not be placed on such forward-looking statements and opinions.
The tax and estate planning information offered by Newport Capital Group is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Past performance is no guarantee of future performance.
The article originally appeared in the March 21 –March 27, 2024 print edition of The Two River Times.
