Clients Who Need to Think about Estate Tax Changes

You want to ensure the efficient financial management and transfer of your clients’ wealth from one generation to the next. For people with significant wealth, successful strategies include minimizing the impact of estate taxes. The Tax Cuts and Jobs Act (TCJA), passed in 2017, introduced considerable changes to the estate tax law. Many of these changes will sunset at the end of 2025, potentially reversing the estate tax exemption of $13.61 million to somewhere between an estimated $6.4 and $7 million. This means that more people will likely be subject to the federal estate tax.

Certain clients, including business owners, farmers, and those with large investment portfolios, may need to reevaluate their estate plans this year.

Estate Tax Planning for Business Owners

Business owners should be acutely aware of the impending sunset of the TCJA tax exemption provisions. Many family-owned businesses may not be subject to federal estate tax at the current exemption amount. However, if these exemptions revert in January 2026, it may become necessary to revisit business succession planning strategies. If your client is not prepared, a significant estate tax bill may require a payment plan with the Internal Revenue Service (IRS). It could also result in liquidating or selling the business, leading to income loss for the owner and job loss for family employees and others.   

Start by reevaluating the business and property, including equipment, inventory, liabilities, earnings, and projected earnings. Encourage your business owners to consider options such as gifting or using family limited partnerships to minimize their business and estate for tax purposes.

Estate Tax Planning for Farmers

Farmers often have much of their wealth tied up in land, and the sunset of the TCJA tax exemption provision can significantly affect their estate planning. While the increased exemption limits currently protect many farmers from federal estate tax, the sunsetting of the high exemption amount in January 2026 may change this. Like with other business owners, it may be necessary to reevaluate their succession plan. Planning ahead could help the farmer’s loved ones avoid being hit with a monstrous estate tax bill, requiring an IRS payment plan, potential sale of the farm, and lost jobs. 

Work with your high-net-worth farmers to explore options like land valuations, gifting strategies, and structuring irrevocable trusts to protect their farmland, crops, equipment, equity, and retirement funds. As with other businesses, entity formation such as family limited partnerships or limited liability companies could also be beneficial in mitigating estate taxes, depending on the circumstances. 

If your client is getting ready to sell their farm, talk to them about deferring capital gains by structuring an installment sale or creating a related-party trust for the benefit of kids or grandkids. 

Estate Tax Planning for Clients with Large Investment Portfolios

In preparation for the potential sunset of the TCJA provisions, clients with large investment portfolios should revisit their allocation of stocks, bonds, and other investments. They should take a closer look at basis planning and ways to minimize capital gains tax liabilities for heirs.

Clients with substantial investment portfolios should consider revising their gifting strategies. While the higher exemption limits are in place, they can gift items to loved ones or create trusts to shelter money and property from estate taxes. The 2024 gift tax limit is $18,000 per individual.

One of the most common and effective strategies for high-net-worth estate planning is establishing trusts for complex situations, such as protecting savings for future generations. If your clients are relying on their portfolio to support their loved ones after the clients’ death, you may need to evaluate how quickly items in their portfolio can be transferred or liquidated in case of an emergency. 

Charitable giving can be another effective way to reduce estate tax liability. Help your clients explore options like charitable remainder trusts (CRTs) or charitable lead trusts (CLTs) to support both charitable causes and estate planning goals.

Educating Your Clients

As the sunset of the TCJA at the end of 2025 approaches, you should proactively guide your clients through options for changing estate tax strategies with the worst-case scenario in mind—reduction of the exemption amount. Business owners, farmers, investors, and high-net-worth professionals all need to reassess their estate planning strategies and investigate the tax implications for heirs when redistributing property.

Many clients who are currently exempt from federal estate taxes may face significant tax liabilities in the future. The key to successful estate planning is flexibility, adaptability, and staying ahead of regulatory changes to achieve your clients’ goals effectively.