Author: Michele Braverman

Celebrating International LEGO Day 

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Mark your calendars: January 28 is International LEGO day, which celebrates the date when the patent for the globally famous plastic brick system was filed. 

Since the 1940s, people have been creating their own worlds, brick by brick, with LEGOs. With an estate plan, you can help your loved ones build a great future. Make your estate plan as specific as you want by providing step-by-step instructions for how you want them to honor your legacy. Or give them the resources to bring their vision to life, no strings attached. 

Either way, an estate plan—like LEGOs—makes a great gift that can be enjoyed by generations to come. 

January 28 and LEGOs

The history of LEGOs began in 1932, when carpenter Ole Kirk Christiansen began making wooden toys in his shop. In 1936, he named his company LEGO, combining the words in the Danish phrase leg godt, meaning “play well.” 

Following World War II, the availability of plastics in Denmark changed the company’s trajectory. Christiansen purchased a plastic injection molding machine and, inspired by interlocking plastic bricks produced by a competitor, he launched the forerunner of modern LEGO bricks in 1949, calling them Automatic Binding Bricks. 

But it was not until 1954 that Christiansen had the aha moment that would make LEGOs world-famous. Until then, his plastic bricks were seen as more of a stacking toy than a system that allowed every brick to fit together and be used in multiple ways. During a business trip to the United Kingdom, a serendipitous conversation with a toy department manager provided the spark that led Christiansen to produce the first LEGO system in 1955.

Customers complained, however, that models built from the plastic brick system lacked stability and clutch power. Godtfred Kirk Christiansen, who had taken over day-to-day operations from his father, hit on the idea of a coupling principle that used a three-tube design. 

The LEGO Group filed a patent for the new building system on January 28, 1958. This design unlocked the LEGO building blocks that are known and loved to this day for their endless building possibilities. 

Draw Inspiration from LEGOs for Your Estate Plan

International LEGO day honors the legacies of the Danish father and son whose passion and creativity spawned one of the best-selling toy lines of all time. The system approach to LEGOs has made it infinitely upgradeable, able to piggyback on changing tastes while remaining timeless. 

LEGOs can inspire not only hobby builders but also estate planners. Like LEGO sets, estate plans can be built in any way imaginable. If you can dream it, you can build it with an estate plan that customizes your legacy and lays down generational building blocks. 

Here are a few estate planning ideas from popular LEGO sets. 

Dream House

For many families, memories are rooted in the places they call home. As children move away and families spread out geographically, there may be a special place, such as a grandparents’ home or a vacation home, that everyone returns to for holidays, family reunions, and other special occasions. 

Passing down a home can keep it in the family, ensuring that new memories are made and old ones are kept alive. There are several ways to leave your home to loved ones, including through a will, co-ownership, a trust, a transfer-on-death deed, or a limited liability company in some states. 

Because the family may not want to deal with maintaining and upkeeping the home, an alternative is to leave a monetary gift that the beneficiary can use to purchase a new house. Everyone has a different idea of what their “castle” looks like. It could be an alpine lodge, a suburban family house in the brick colonial style from Home Alone, or a tiny home for the intrepid minimalist. 

World Travel

Among younger generations, there is an emphasis on spending time and money on experiences rather than amassing material goods. An Eventbrite survey found that nearly 80 percent of millennials would choose to spend money on an experience over buying an object they desired. 

Travel is a major part of the so-called experience economy. Most bucket lists include at least one travel destination. In 2023, due in part to pent-up pandemic demand, Americans reported spending more on travel and traveling longer. 

An estate plan gift can help loved ones cross off bucket-list destinations and fulfill their dreams of seeing the world. Travel money can be gifted to an individual or set aside for a group trip that lets the family visit a special destination. Send them to see the wonders of the world or set aside money for a more personal journey to the small village from which your ancestors emigrated. 

Education

No gift keeps on giving quite like an education. Educated people are more likely to reap benefits throughout their life. More education is often linked to higher income, which is in turn linked to greater wealth and better health. 

Money placed in a trust for education can come with attached terms that a trustee oversees. For example, the trust may specify that the funds may only be used to pay for a college education, or, if the University of Brickester is not in the cards, a vocational training program. 

Trust money could fund a nontraditional path as well. Does somebody in your life aspire to write a book or design their own LEGO set? Gift them a nest egg that offers the financial freedom to bring their idea to life. 

Give Back

The legacy wishes of some individuals extend outside their immediate family and are focused on the greater good. For the philanthropically minded, a charitable gift can support a cause that they are passionate about. 

Maybe you are committed to supporting disadvantaged youth or preserving wildlife. And you might want to encourage your beneficiaries to carry on your legacy of giving back once you are gone. Both can be addressed in an estate plan. 

As a bonus, charitable contributions offer tax advantages. Charitable contributions can minimize estate taxes, leaving more for your loved ones and providing for a good cause at the same time. 

Build Your Legacy. Talk to An Estate Planning Attorney. 

LEGOs have brought decades of joy to people of all ages. Thoughtful estate planning can do the same. 

An estate that spells out exactly how beneficiaries are to use inherited assets is comparable to a LEGO set that provides building instructions. Another option is to pass down assets in a lump sum, without instructions, giving recipients an open-ended gift that can be used however they want, in the style of a classic build-your-own LEGO kit. But be careful—just like LEGO pieces that are left out, your loved one’s inheritance could be snatched up by creditors, a divorcing spouse, or used up quickly if you give it to them in one lump sum.

Legacies are part inspiration, part follow-through. It took a patent office filing to launch the LEGO empire. To this day, LEGO is owned by a grandchild of the company’s founder. 

Extending your personal empire into the future—to your children, great-grandchildren, and beyond—requires executing estate plan documents and updating them periodically. To start building your estate plan, contact our office and schedule an appointment. 

5 Good Reasons to Decant a Trust

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Today, many estate plans contain an irrevocable trust that will continue for the benefit of a spouse’s lifetime and then continue for the benefit of several generations. Because trusts like these are designed to span multiple decades, it is important that they include trust decanting provisions to address changes in circumstances, beneficiaries, and governing laws. 

What is trust decanting?

When a bottle of wine is decanted, it is poured from one container into another. When a trust is decanted, the accounts and property from the existing trust are removed and distributed into a new trust that has different and more favorable terms.  

When should a trust be decanted?

Provisions for trust decanting should be included in trusts that are intended to last decades into the future. Decanting can do the following:

  1. Clarify ambiguities or drafting errors in the trust agreement. As trust beneficiaries die and younger generations become the new heirs, vague provisions or outright mistakes in the original trust agreement may become apparent. Decanting can be used to correct these problems.
  2. Provide for a special needs beneficiary. A trust that is not tailored to provide for a special needs beneficiary will cause the beneficiary to lose government benefits. Decanting can be used to turn a trust in which the beneficiary is entitled to money into a full supplemental needs trust.
  3. Protect the trust’s accounts and property from the beneficiary’s creditors. A trust that gives the beneficiary control or access to their inheritance puts that inheritance at risk of being snatched by the beneficiary’s creditors, rapidly depleting the inheritance if the beneficiary is sued. Decanting can be used to convert a trust without any asset protection features into a full discretionary trust that the beneficiary’s creditors will not be able to reach.
  4. Merge similar trusts into a single trust or create separate trusts from a single trust. An individual may be the beneficiary of multiple trusts that have similar terms. Decanting can be used to combine these trusts into one trust that will reduce administrative costs and oversight. On the other hand, a single trust that has multiple beneficiaries with differing needs can be decanted into separate trusts tailored to each individual beneficiary.
  5. Change the governing law or situs to a different state. Changes in state and federal laws can adversely affect the administration and taxation of a multigenerational trust. Decanting can be used to take a trust that is governed by laws that have become unfavorable and convert it into a trust that is governed by different and more advantageous laws.   

Final Thoughts on Trust Decanting

Including trust decanting provisions in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust. This will help ensure that the trust agreement has the flexibility necessary to avoid court intervention to fix a trust that no longer makes practical or economic sense.  

If you are interested in adding trust decanting provisions to your trust or would like to have the decanting provisions of your trust reviewed, please call our office.

How Much Authority Does a Trustee Have Over the Stuff in My Trust?

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A trustee is a person or entity responsible for managing and administering your trust according to your instructions and in accordance with state law. They are considered a fiduciary (meaning they are held to a higher standard of care and owe certain duties to the beneficiaries). As a fiduciary, a trustee must protect the trust’s investments and act in the best interests of the beneficiaries. They must prepare and maintain trust accounting records and prepare tax-related forms, providing this information to the beneficiaries at their request. At some point, they may need or be required to liquidate or sell the trust’s accounts and property. 

A Trustee’s Authority to Sell Assets While Administering the Trust

When administering a trust, the trustee might encounter situations in which they need to convert trust assets into cash to provide liquidity to the trust. This could mean converting trust assets such as stocks and bonds or selling other trust property such as real estate or other high-value assets to generate the necessary funds. Though this decision must be based on prudent investor rules or standards and be in the best interest of the beneficiaries, trustees generally do not need beneficiary approval to liquidate or sell trust property, but they may seek it to avoid potential arguments in court regarding their decisions and authority. The biggest restriction is that trustees are not allowed to sell trust property for their own benefit. There may be an exception to this restriction if the trustee is also a trust beneficiary.

Creating Liquidity 

A trustee may need to create liquidity for various reasons:

  • Meeting financial obligations. The trust may have ongoing financial commitments, such as taxes, mortgage payments, or insurance premiums. By creating liquidity, the trustee can fulfill these obligations without disrupting the overall trust management.
  • Covering administrative costs. There could be administrative expenses related to legal and accounting services, as well as fees for managing the trust. Creating liquidity ensures that the trustee can cover these costs promptly and efficiently.
  • Fulfilling distributions. If the trust mandates periodic or one-time distributions to beneficiaries, creating sufficient liquidity allows the trustee to meet these distribution requirements in a timely manner.
  • Responding to opportunities or challenges. Market opportunities or unexpected financial challenges may arise that require quick access to funds. Creating liquidity enables the trustee to seize favorable investment opportunities or address unforeseen financial needs effectively.

Investment Strategy

A trustee has the authority and responsibility to manage the trust’s investments in a manner that aligns with the trust’s goals and changing financial circumstances. It may be necessary to modify the investment strategy for a variety of reasons:

  • Evaluating economic conditions. The trustee must continuously evaluate economic conditions, market trends, and the performance of the trust’s assets, such as accounts and other property. If the existing investment strategy no longer serves the trust’s objectives, the trustee may need to consider adjustments.
  • Risk management. Based on the trust’s performance and the financial landscape, the trustee may need to rebalance the portfolio to ensure an appropriate level of risk and potential return. This could involve diversifying investments or reallocating assets.
  • Adapting to beneficiary needs. Changes in beneficiary circumstances, such as increased education expenses or healthcare needs, may necessitate a shift in the investment strategy to generate income or accommodate specific beneficiary requirements.
  • Long-term growth versus income generation. Depending on the trust’s purpose, the trustee may need to adjust the investment approach to prioritize long-term growth, income generation, or a balanced approach, ensuring the trust’s sustainability and fulfillment of its intended purpose.

You Can Control the Sale of the Trust’s Assets

If you are the trustmaker and have concerns about a trustee’s authority to liquidate or sell accounts and property, you can provide specific guidelines controlling the sale of the trust’s assets.

When establishing a trust, you may have specific assets you would like to preserve, whether for sentimental reasons, future generations, or other purposes. However, you should be cautious when including provisions that restrict the liquidation or sale of particular assets.

Placing restrictions on liquidating or selling assets in the trust can help preserve family heirlooms, properties with historical or emotional significance, or specific investments that align with the trust’s long-term goals. However, overly restrictive provisions can present challenges to the trustee, especially in situations where the trust may require liquidity, when there is a need to change the investment strategy to meet financial obligations or adapt to market conditions, or if there have been changes in tax laws, economic conditions, or family dynamics.

It is essential to strike a balance between preserving important assets like certain property or accounts and allowing the trustee the flexibility needed to effectively manage the trust, ensuring the trust’s long-term viability and the best interests of the beneficiaries.

A Trustee’s Responsibility Regarding Distributions to Beneficiaries

Overall, the trustee must adhere to the instructions laid out in the trust agreement. If the trust’s terms specify that the trustee must distribute money or property to a beneficiary at a particular future date or upon meeting specific conditions, the trustee is obligated to follow these instructions precisely. That is why making informed decisions when creating a trust and defining the trustee’s role and responsibilities is important. 

Stipulating specific instructions regarding when and how distributions should be made to beneficiaries often requires attaching conditions to distributions, such as timelines and other triggering events like a beneficiary’s age or completion of a milestone. Whatever the conditions are, the trustee will usually be required to follow them unless they are illegal or against public policy.

Communication Between a Trustee and Beneficiaries Is Critical When Selling Trust Assets

The trustee should—and in some instances is required to—maintain open communication with both the beneficiaries and any co-trustees, keeping them informed about the trust’s status and decisions when creating liquidity and changing investment strategies that may affect upcoming distributions. Transparency helps answer questions and manage expectations.

Accurate and thorough recordkeeping is essential to demonstrate compliance with the trust terms and the law. Detailed records can help explain the rationale behind each decision, and relevant documents can support the actions taken by the trustee.

If you are a trustee and are unsure about the trust terms relating to the management or sale of assets, we can assist you and any financial professionals with whom you are working. If you are creating an estate plan that includes a trust, working with an experienced attorney to craft a comprehensive trust agreement can help ensure your trustee’s compliance and protect the interests of both the trust and its beneficiaries.

We can help you memorialize your intentions in your trust agreement and strike a balance between preserving your life savings and granting the trustee the necessary flexibility to manage the trust successfully. Give us a call to schedule your appointment today.

 3 Examples of When an Irrevocable Trust Can—and Should—Be Modified

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Did you know that irrevocable trusts can be modified? If you did not, you are not alone. The name lends itself to that very misconception. However, the truth is that changes in laws, family, trustees, and finances can frustrate the trustmaker’s original intent when the trust was created. Or, sometimes, an error in the trust document is identified. When this happens, it is wise to consider changing the trust, even if that trust is irrevocable.

Here are three examples of when an irrevocable trust can, and should, be modified or terminated:

  1. Changing tax law. Adam created an irrevocable trust in 1980 that held a life insurance policy. Due to the federal estate tax exemption at that time, Adam needed a tool that would remove the value of the proceeds from his estate at his death. To facilitate this, an irrevocable life insurance trust was created to own the life insurance policy and be the beneficiary of the proceeds at Adam’s death. Today, the federal estate tax exemption has significantly increased and Adam no longer needs to worry about removing the life insurance proceeds from his estate to avoid estate taxation at his death.  
  1. Changing family circumstances. Barbara created an irrevocable trust for her grandchild, Christine. Now an adult, Christine has a disability and would benefit from government assistance. According to the current instructions for how money is to be given to Christine, Barbara’s trust would unintentionally disqualify Christine from receiving much-needed government assistance.
  1. Discovering errors. David Sr. created an irrevocable trust to provide for his numerous children and grandchildren. However, after the trust was created, his son (David Jr.) discovered that his son (David III) had been mistakenly omitted from the document.  

Are you sure your trust is still working for you?

If you are not sure whether an irrevocable trust is still a good fit or if you wonder whether you can benefit more from your trust, we are happy to meet with you so we can analyze your current trust. Perhaps modifying or terminating your irrevocable trust is a good option. Making that determination simply requires a conversation about your goals and a review of the trust itself. Please call our office now to schedule time to review your current trust or discuss the potential benefits that a trust can provide to address your unique situation and goals.

Do Not Leave Your Trust Unprotected: 6 Ways a Trust Protector Can Help You

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Trust protectors are commonly used in the United States. Essentially, a trust protector is someone who serves as an appointed authority over a trust that will be in effect for a long period of time. Trust protectors ensure that trustees maintain the integrity of the trust, make solid distribution and investment decisions, and adapt the trust to changes in law and circumstance.  

Whenever changes occur, as they are bound to do, the trust protector has the power to modify the trust to carry out the trustmaker’s intent. Significantly, the trust protector has the power to act without going to court—a key benefit that saves time and money and honors family privacy.  

Here Are 6 Ways a Trust Protector Can Help You 

Your trust protector can take the following actions:

  1. Remove or replace a trustee who is not performing their duties appropriately or is no longer able or willing to serve
  1. Amend the trust to reflect changes in the law
  1. Resolve conflicts between beneficiaries and trustees or between multiple trustees
  1. Modify distributions from the trust in response to changes in beneficiaries’ lives such as premature death, divorce, drug addiction, disability, or lawsuits
  1. Allow new beneficiaries to be added when new descendants are born  
  1. Veto investment decisions that might be unwise

Warning

The key to making a trust protector work for you is to be very specific about the powers available to that person. It is important to authorize that person, and any future trust protectors, to fulfill their duty to carry out the trustmaker’s intent—not their own. 

Can You Benefit from a Trust Protector?

Generally speaking, the answer is yes. Trust protectors provide flexibility and an extra layer of protection for the trustmaker’s intent as well as for the trust’s accounts and property and its beneficiaries. Trust protector provisions can easily be added to a new trust, and older trusts may be changed to add a trust protector. If you have created a trust or are a beneficiary of a trust that feels outdated, call our office now.

If You Own Any of These Assets, You Need to Watch Their Value

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As we begin 2024, it is crucial to review estate planning goals and strategies that may be affected by changes in the federal estate tax exemption law. At the end of 2025, the Tax Cuts and Jobs Act (TCJA) the estate tax exemption, which is $10 million, adjusted for inflation, may revert to the pre-2017 exemption amount, cutting it almost in half. Depending on the types of accounts and property you own, you may need to pay close attention to their value.

You may need a complete reevaluation of your most significant investments and property to ensure that they are protected. The following items may have steadily increased in value over time, potentially creating major estate tax issues:

  • Business interests
  • Life insurance
  • Real estate

For people with significant wealth, each of these items alone may not put you over the estate tax limits, but the combination could. 

Your Business

With the uncertainty surrounding the estate tax exemption, developing a comprehensive business succession plan is crucial, especially if your goal is for the business to continue on after you have retired or passed away. Consider strategies such as gifting shares to the next generation or creating a family limited partnership. 

The last thing you want to do is sell your business or farm that may have been in your family for generations (if farming is your occupation) to satisfy a looming estate tax bill. Not only would this be a financial and emotional loss, but it may also result in the loss of jobs for your family and other employees. 

Your Life Insurance Policies

Life insurance policies may be an essential part of your estate plan. Review your life insurance policies to ensure that they are used effectively for your estate planning goals with the federal estate tax exemption in mind. Increasing policy values could put you over the potentially lower lifetime exemption limit. Consider the following:

  • You need to determine how much life insurance to purchase. By meeting with an experienced insurance agent and financial planner, you can ensure that you have the right amount of coverage to adequately plan for your loved ones.
  • The ownership of the policy can affect estate tax liability. Transferring ownership of the policy to an irrevocable life insurance trust (ILIT) may allow you to remove the value of the policy from your estate and protect the death benefit on behalf of your chosen beneficiaries.

Multiple Real Estate Properties

Real estate can pose specific challenges in estate planning. Reassess the current value of your properties to ensure accurate tax planning, keeping the potential decrease in the estate tax exemption in mind. Depending on the economic climate, your real estate may be far more valuable than when you first acquired it. You might consider using trusts, such as qualified personal residence trusts (QPRTs), to transfer real estate to heirs while minimizing estate tax exposure. You might also consider creating an entity, or multiple entities, to own the real estate. This strategy may be able to offer additional asset protection for you and your loved ones.

Stay Informed with the Help of Professionals

The estate tax landscape is evolving, and it is important that your estate plan stays up to date. We would love to collaborate with your trusted financial and tax advisors to update your comprehensive estate plan. Your situation and family dynamics are unique, and your plan must be customized to your specific circumstances to adequately protect your property and minimize potential tax liabilities well before the estate tax exemption sunsets at the end of 2025. 

Clients Who Need to Think about Estate Tax Changes

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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.

Case Study: How Concerned Should You Be about Estate Tax Issues?

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If you have significant wealth, you may be exposed to future estate tax burdens that must be acted on before the Tax Cuts and Jobs Act reduces the estate tax exemption in 2026. Developing and implementing the right estate planning and tax strategies takes time. You may need to prepare regardless of whether the estate tax continues at its current level or if it is cut in half. This means strategizing to minimize your estate tax liability now.

Does This Sound Like You?

Meet the Andersons, a well-off family living in a state with a high cost of living. Robert Anderson, the father, is a successful entrepreneur who built a thriving business over the years. His wife, Sarah, is an accomplished artist, and together they have accumulated a substantial estate of $8 million each, for a total of $16 million. Their estate is primarily composed of their business assets, valuable artwork, life insurance, a family residence, a vacation home, and other lucrative investments. They have two adult children, James and Emily, both actively involved in the family business.

Their Unique Estate Tax Situation

With the generous federal estate tax exemption set at $10 million adjusted for inflation per individual in 2017, steadily increasing to $13.61 million in 2024, the Andersons have felt relatively secure about avoiding estate taxes. Their primary concern has been preserving the family legacy and ensuring a smooth transition of their assets (business, accounts, and property) to the next generation. They had taken some initial estate planning steps, such as creating a will, discussing the use of a family limited partnership, and exploring gifting strategies to transfer the assets to their children gradually.

If the estate tax exemption drops to $5 million adjusted for inflation, the Andersons may face several estate tax issues that require professional advice and assistance before the end of 2025. The Andersons need to find other ways to protect their money and property.

Business Succession Planning

The family business represents a significant portion of the Andersons’ estate, and the sunsetting of the higher exemption amount could have profound implications for its continued viability. Robert and Sarah need to develop a comprehensive business valuation and succession plan now to minimize the total estate tax burden and ensure a smooth ownership transition to James and Emily later.

Property and Investments

Given the potential changes in the estate tax landscape, the Andersons need to revisit the valuation of their financial accounts, retirement and life insurance investments, personal property, real estate, and artwork to ensure accurate assessments. Then they need to determine which items will affect the estate tax calculation and any remaining exemption they have left from prior legacy planning. Depending on their assets’ values, these items can easily put them over the potentially soon-to-be lower estate tax exemption, exposing them to a 40 percent tax rate. 

Lifetime Gifting

With the uncertainty surrounding the estate tax exemption, the Andersons may want to consider accelerated lifetime gifting strategies to reduce their taxable estate while the higher exemption is in place. The Internal Revenue Service declared in 2019 that individuals who take advantage of the increased gift tax exclusion from 2018 to 2025 will not be negatively impacted after 2025 if the exclusion amount drops. Gifting up to $13.61 million in 2024 has a zero tax liability. But gifting over $6.4 million in 2026 may have major consequences.

Life Insurance

The Andersons may want to use life insurance to ensure that their loved ones are provided for at their passing. They may want to consider creating an irrevocable life insurance trust to own the life insurance policy and be the recipient of the death benefit. This removes the value of the policy from the Andersons’ estate and protects the death benefit for their chosen beneficiaries. 

Marital Deduction Planning

The significant portfolios of high-net-worth and ultra-high-net-worth families may require advanced tax planning techniques, including an AB trust, to optimize each spouse’s estate tax exemption and potentially minimize their estate tax liability. At the client’s death, an amount equal to the current estate tax exemption amount is placed in one trust, which uses the exemption, and the remainder is placed in a second trust for the surviving spouse’s benefit, which qualifies for the unlimited marital deduction. This results in no estate tax being owed at the death of the first spouse.

Portability and the Deceased Spouse Unused Exemption Amount

Spouses are able to give an unlimited amount of money and property to each other without having to worry about estate or gift tax. Because of this, some clients may not have an estate tax issue at the first spouse’s death because everything (or a substantial portion) went to the surviving spouse. Because they are utilizing the unlimited marital deduction, the deceased spouse’s exemption is not needed. However, even if this is the case, it may be advisable to file an estate tax return at the first spouse’s death to document how much of that deceased spouse’s exemption is being used, if any, and that the remainder is going to the surviving spouse. This will allow the surviving spouse to add the deceased spouse’s unused exclusion (DSUE) to the surviving spouse’s own exemption amount and apply that combined amount against their own estate at the time of death.

Charitable Giving

If the Andersons are philanthropically inclined, another great option would be to engage in charitable giving through the use of a charitable remainder trust. Setting up this type of trust can be time-consuming—sometimes the process is fairly straightforward but often highly complex, requiring advanced planning and consideration.

Contacting a Trusted Advisor

If your situation is similar to the Andersons, expert guidance is necessary to address estate tax issues and help you evaluate the impact of the potential sunsetting of the higher estate tax exemption amount on your estate. Contact us to learn more about strategies to protect, preserve, and pass down valuable property. 

Case Study: Clients Who May Need Your Help with Estate Tax Planning

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Your clients and their loved ones may be exposed to future estate tax burdens, and the time to act on the sunsetting Tax and Jobs Act is now—not in 2025. Developing and implementing the right estate planning and tax strategies takes time, so you are sure to be busy as the deadline approaches. 

Which Clients Should You Reach Out To?

Meet the Andersons, a well-off family living in a state with a high cost of living. Robert Anderson, the father, is a successful entrepreneur who built a thriving business over the years. His wife, Sarah, is an accomplished artist, and together they have accumulated a substantial estate of $8 million each, for a total of $16 million. Their estate is primarily composed of their business assets, valuable artwork, life insurance, a family residence, a vacation home, and other lucrative investments. They have two adult children, James and Emily, both actively involved in the family business.

Their Unique Estate Tax Situation

With the generous federal estate tax exemption set at $10 million adjusted for inflation per individual in 2017, steadily increasing to $13.61 million in 2024, the Andersons have felt relatively secure about avoiding estate taxes. Their primary concern has been preserving the family legacy and ensuring a smooth transition of their assets (business, accounts, and property) to the next generation. They have taken some initial estate planning steps, such as creating a will, discussing the use of a family limited partnership, and exploring gifting strategies to transfer assets to their children gradually.

If the estate tax exemption sunsets to $5 million adjusted for inflation, the Andersons may face several estate tax issues that require professional advice before the end of 2025. The Andersons need to find other ways to protect their money and property.

Business Succession Planning

The family business represents a significant portion of the Andersons’ estate, and the sunsetting exemption could have profound implications for its continued viability. Robert and Sarah need to develop a comprehensive business valuation and succession plan now to minimize the total estate tax burden and ensure a smooth ownership transition to James and Emily later. 

Property and Investments

Given the potential changes in the estate tax landscape, the Andersons need to revisit the valuation of their financial accounts, retirement and life insurance investments, personal property, real estate, and artwork to ensure accurate assessments. Then they need to determine which items will affect the estate tax calculation and any remaining exemption they have left from prior legacy planning. Depending on their assets’ values, these items can easily put them over the potentially soon-to-be lower estate tax exemption, exposing them to a 40 percent tax rate that could cost them millions. 

Lifetime Gifting

With the uncertainty surrounding the estate tax exemption, the Andersons may want to consider accelerated lifetime gifting strategies—including contributions to tax-advantaged accounts like 529 plans for their grandchildren—to reduce the taxable estate while the higher exemption is in place. The Internal Revenue Service declared in 2019 that individuals who take advantage of the increased estate and gift tax exclusion from 2018 to 2025 will not be negatively impacted after 2025 if the exclusion amount drops. Gifting up to $13.6 million in 2024 has a zero tax liability. But gifting over $6.4 million in 2026 could have major consequences.

Life Insurance

Help your client determine how much life insurance they may need to ensure that their loved ones are provided for at their passing. They may want to fund an irrevocable life insurance trust to own the life insurance policy and be the recipient of the death benefit. This removes the value of the policy from the Andersons’ estate and protects the death benefit for their chosen beneficiaries

Marital Deduction Planning

The significant portfolios of high-net-worth and ultra-high-net-worth families may require advanced tax planning techniques, including an AB trust, to optimize each spouse’s estate tax exemption and potentially minimize their estate tax liability. At the client’s death, an amount equal to the current estate tax exemption amount is placed in one trust, which uses the exemption, and the remainder is placed in a second trust for the surviving spouse’s benefit, which qualifies for the unlimited marital deduction. This results in no estate tax being owed at the death of the first spouse.

Portability and the Deceased Spouse Unused Exemption Amount

Spouses are able to give an unlimited amount of money and property to each other without having to worry about estate or gift tax. Because of this, some clients may not have an estate tax issue at the first spouse’s death because everything (or a substantial portion) went to the surviving spouse. Because they are utilizing the unlimited marital deduction, the deceased spouse’s exemption is not needed. However, even if this is the case, it may be advisable to file an estate tax return at the first spouse’s death to document how much of that spouse’s exemption is being used, if any, and that the remainder is going to the surviving spouse. This will allow the surviving spouse to add the deceased spouse’s unused exclusion (DSUE) to the surviving spouse’s own exemption amount and apply that combined amount against their own estate at the time of death. 

Charitable Giving

If the Andersons are philanthropically inclined, another great option would be to engage in charitable giving through the use of a charitable remainder trust. Setting up this type of trust can be time-consuming—sometimes the process is fairly straightforward but often highly complex, requiring advanced planning and consideration.

Your Role as a Trusted Advisor

Clients like the Andersons require your expert guidance to address potential estate tax issues and evaluate the impact a potential sunsetting of the high estate tax exemption amount may have on their estate. After reevaluating a list of their most significant items and investments, you can provide options for protecting, preserving, and passing down valuable property.

Finding the best strategy may require collaboration with other trusted professionals. We welcome the opportunity to collaborate with you to develop a comprehensive plan to protect your clients. 

What Is Not Taxable Today Might Be Taxable Tomorrow

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Counting Down to 2026: Will We Keep the $10 Million Estate Tax Exemption?

The year 2026 is fast approaching, and it brings substantial changes to discuss with your clients regarding estate taxes. The Tax Cuts and Jobs Act (TCJA) introduced a significant increase in the federal estate tax exemption, setting it at an impressive $10 million, adjusted for inflation, per individual. However, the countdown has begun for the potential sunset of this generous exemption—what is not taxable today might be taxable tomorrow. 

History of the Estate Tax Exemption

Delving into the history of the estate tax exemption offers insight into arguments for and against its continuation. The federal estate tax was first enacted in 1916 to generate revenue for the government. Over the years, it has undergone various changes in exemption limits and rates.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) gradually increased the estate tax exemption and reduced the tax rate until it reached zero in 2010. However, the estate tax was set to return to the 2001 amounts for deaths occurring in 2011 unless further legislative action was taken. In 2011, the estate tax exemption was restored to $5.0 million.

Legislative Intent

In 2017, the TCJA was developed to stimulate economic growth and job creation. Doubling the estate tax exemption from $5.49 million to nearly $11 million was a key part of this strategy. At $13.61 million in 2024, it continues to adjust for inflation, offering individuals an unprecedented opportunity to pass on substantial wealth tax-free.

The TCJA’s Sunset Provision

A sunset provision was embedded within the TCJA. The increased estate tax exemption, which will reach $13.61 million in 2024, is set to expire on December 31, 2025. Without legislative intervention, it will revert to the 2017 limit of $5 million adjusted for inflation. Adjusting for inflation, the Congressional Budget Office estimates the exemption amount will be $6.4 million in 2026. This may create a potential estate planning crisis for high-net-worth families with larger estates who previously were not subject to the estate planning tax. These individuals must prepare for both scenarios—the sooner, the better.

Why the Current Estate Tax Exemption May Continue

Maintaining the high estate tax exemption could be seen as a move that benefits the wealthy, broadening the tax burden for others. It can also be seen as maintaining the status quo. And the current law ensures that most people will not be subject to federal estate taxes. 

A higher estate tax exemption was intended to foster economic growth and capital investment by allowing wealthier individuals and families to reinvest their wealth in businesses and job creation. Yet the federal government relies on estate tax revenue to fund various programs and initiatives and obviously will not want to reduce a lucrative revenue source. Without the estate tax, other revenue sources would have to foot the bill for these programs and face cuts in the benefits and services provided.

For the estate tax exclusion to remain at the higher amount beyond 2025, Congress will need to take action.

Why the Estate Tax Exemption May Revert Back

The TCJA was part of a short-term tax cut package. Lawmakers had to make room in the budget for the tax cuts introduced by the legislation. They did this by temporarily increasing the estate tax exemption. 

Proponents of sunsetting the estate tax exemption maintain that a lower exemption amount will generate more revenue by increasing the number of people who pay the tax and increasing estate tax exposure to those with net wealth above the current exemption amount. This means that people with estates valued at less than $10 million may once again be impacted by federal estate tax law. Estate tax revenues are projected to increase sharply after 2025 with the drop in the exemption amount. Over the 2021–2031 period, combined estate and gift tax revenues are estimated to be $372 billion. 

Commitment to the Trusted Advisor Role

As we begin 2024, it is crucial to inform your clients about the potential changes in the federal estate tax exemption and help them prepare for possible scenarios. Encourage them to review their estate plans to ensure that their money and property are protected and their financial legacy is preserved. There may be several strategies to navigate potential estate taxes effectively.

Advise your clients to make informed decisions based on the current legal framework before 2025 while keeping a watchful eye on any developments in the future. Preparation offers families new planning opportunities and peace of mind. Whether the exemption is set at $6.4 million or $13.6 million, it still provides protection from estate taxes.