As we navigate through 2024, it's crucial for individuals to stay informed about the changes and considerations necessary for effective estate planning. The Life Group is dedicated to providing authoritative insights and strategic advice to help you secure your financial future. In this post, we'll explore key estate planning considerations that are particularly relevant for the year ahead.
Understanding the Impending Tax Changes in 2026
One of the most significant upcoming changes in estate planning involves the scheduled adjustment of the tax exemption amount. Currently, the exemption stands at $13.61 million, but it's set to revert to its previous threshold of $5 million in 2026, likely adjusted for inflation to around $7 million. Furthermore, there's a proposal from the Biden Administration to lower the lifetime estate and gift tax exemption amount even further to $3.5 million, along with an increase in the estate tax rate from 40% to 45%.
For example, under the current law, an estate valued at $10 million at the time of death incurs no federal tax, as it falls below the $13.61 million exemption. However, with the anticipated changes, this estate could be taxed on $3 million at a rate of 40% or even 45% if the new proposals come into effect.
Strategic Planning Before 2026
To navigate these changes effectively, strategic planning is essential. Here are a few strategies worth considering:
Spousal Lifetime Access Trust (SLAT)
A SLAT is an irrevocable trust that allows one spouse to transfer wealth to the other while excluding future appreciation from estate taxes. The beneficiary spouse retains limited access to the assets, providing flexibility. It’s important for the donor spouse to maintain enough funds outside the SLAT to meet their financial needs, as they cannot benefit directly from the SLAT’s assets.
Credit Shelter Trust (CST)
A CST comes into play upon the death of one spouse, with a portion of their assets transferred into the trust. These assets then pass to beneficiaries after the surviving spouse's death, shielded from estate taxes. However, beneficiaries might face higher income taxes due to only one step-up in basis, potentially leading to higher capital gains taxes when assets are sold.
Permanent Life Insurance
Permanent life insurance provides lifetime coverage and builds cash value over time, contrasting with term life insurance that covers a specific period. Policyholders can use this cash value for various expenses, and importantly, life insurance proceeds are usually exempt from estate taxes. This strategy is particularly useful for providing liquidity for estate taxes or compensating for wealth lost to taxes, especially for estates at risk of exceeding future exemption amounts.
Why Regular Review is Critical
Given the potential for significant changes in estate tax law, it's more important than ever to regularly review and update your estate plan. This ensures that your plan not only complies with current laws but also aligns with your personal goals and the needs of your family.
How We Can Help
At The Life Group, we understand the complexities of estate planning and the importance of staying ahead of legislative changes. We're here to provide the guidance and support you need to navigate these changes confidently.
If you have any questions or concerns about your estate plan or wish to discuss the strategies mentioned above, don't hesitate to reach out. Scheduling a consultation with us is the first step towards securing your family's future. We're committed to helping you make informed decisions that align with your long-term objectives.
To learn more and start planning for your family's future, contact The Life Group today
to schedule your consultation.