The Tax Cuts and Jobs Act of 2017 (TCJA) introduced significant changes to the tax landscape, offering many individuals and businesses reduced tax liabilities. However, these benefits are set to expire on January 1, 2026. This impending deadline has prompted financial professionals and estate planning attorneys to advise clients on taking advantage of the current tax laws. With the potential for President Trump to return to the White House and the Republican Party controlling Congress, there is speculation that legislation may extend key aspects of the TCJA, including:
- High Federal Estate, Gift, and Generation-Skipping Transfer Tax Exemptions: In 2025, these exemptions are set at $13.99 million per person or $27.98 million per couple.
- Reduced Income Tax Rates: Certain tax brackets benefit from reduced rates and increased income thresholds.
Stay Focused on Your Estate Planning Goals
While the possibility of extending favorable tax laws might reduce the urgency to finalize your estate plans, it's crucial not to become complacent. Political shifts can quickly alter the tax environment, and your estate plan should not be dependent on which party is in power. Remember, estate planning is about more than tax savings— crafting your legacy and ensuring your wishes are honored.
The Personal Side of Estate Planning
Focusing solely on tax changes can lead to an estate plan that doesn't fully meet your evolving personal needs. Here’s how estate planning can help:
- Protect Your Children: Designate guardians for minor children and specify how your assets should benefit them.
- Address Unique Family Situations: Tailor your plan to account for blended families, non-citizen spouses, or partners to whom you are not legally married.
- Ensure Business Continuity: Avoid the common pitfall of business failure due to lack of succession planning.
- Support Loved Ones with Special Needs: Create a plan that balances government benefits with your support.
- Manage Retirement Assets: Plan for the distribution of qualified retirement assets, which do not receive a step-up in cost basis.
- Consider Other Taxes: Be aware of state estate or inheritance taxes and plan for potential capital gains taxes on assets in irrevocable trusts.
By addressing these aspects, you can create a comprehensive estate plan that reflects your values and priorities, ensuring your legacy is preserved for future generations.