C3 Financial Partners

Where Will Your Estate Go?

Every professional involved in tax and estate planning knows that we exist in a world where a big ticking clock is counting down to a potentially seismic change that will impact estates and how they are taxed.

We are referring to the enacted sunsetting of the current gift and estate tax exemption amounts at the end of 2025.

In this blog, we discuss how there are only three potential recipients of your estate and the ways that this looming change might impact your ability to control which of those three receive your estate.

At C3 Financial Partners, we educate our clients on how the changing tax regime may impact their planning so they can make decisions from a place of understanding.

Clarity

The lifetime gift and estate tax exemption is the amount a taxpayer may give away either via gifts or inheritance over the course of their lifetime without having to pay the applicable federal gift or estate tax.  This limit is adjusted each year and the 2024 lifetime gift and estate tax exemption is $13.61 million per person (up from $12.92 million in 2023).

The current exemption structure was set by The Tax Cuts and Jobs Act of 2018 (the “TJCA”), which doubled the then-current gift and estate tax exemption level.  This created an amazing planning opportunity as never before had taxpayers in the United States seen an exemption amount this high, either in terms of dollar amount or potential impact on estate planning.

Which brings us to that ticking clock metaphor.  In order for the legislation to work under complicated Congressional budget impact rules, the TJCA was passed with a sunset provision.  This means, absent any action from Congress in the next year and a half, the current exemption regime is set to expire at the end of 2025.  This will reset the exemption to its prior level (adjusted for inflation), or approximately $6-7 million per individual.

The impact of the sunsetting exemption amount can have a significant tax impact on certain estates.  Without proper planning, taxpayers with larger estates who die in 2026 or later may see a larger portion of their estate subject to taxation (at a rate of approximately 40%).  Therefore, there is a strong incentive to act now, engage in a quality planning process, and take advantage of the current historic tax laws.

In addition, the IRS confirmed that planning done now will not be adversely affected by the resetting of the exemption limits.  Per the IRS website, “On November 26, 2019, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.”

When engaging in a thorough estate planning process, we believe it is essential to collaborate with experienced financial professionals, including the planning specialists at C3 Financial Partners, to tailor the strategies to individual circumstances and goals.

Confidence

When someone dies, there are really only three places where their money can go: their heirs, their favorite community organizations, or the government.  Most people would prefer that more of their estate went to the first two categories and less to the third.

At its heart, that is what estate planning is all about.  To the extent possible, a client is making the decision now as to where they want their money to go when they die and then creating the planning structure that will implement those decisions.  So rather than to the government in the form of taxes, your legacy will go to the heirs you choose and/or the community organizations you wish to support, even after you are gone.

For those who wait to plan and do not take advantage of the current beneficial planning environment, the looming decrease to the gift and estate tax exemption limit will essentially take part of that decision out of their hands, automatically giving a great portion of their legacy to the government and beyond their ability to choose its use.

At C3 Financial Partners, we believe our clients should have a say in who benefits from their legacy and can explain various options that may allow that to happen.

Coordination

There are no two ways about it – estate planning requires a coordinated effort.  To do it successfully, a client needs a team of advisors working together, each bringing their unique perspective and expertise to the table to help create a truly effective and customized plan.

 

With the ticking clock of the likely reduction in the gift and estate tax exemption amounts, what is already a complex process is now further complicated by a hard timetable by which planning needs to be completed.

At C3 Financial Partners, we look forward to helping our clients gain clarity in their estate planning goals and objectives, confidence that they are making the right decisions as to where their legacy should go, and providing coordination with their other advisors to create and implement the right plan for them.

Securities offered through Valmark Securities, Inc. member FINRA, SIPC. Investment advisory products and services offered through Valmark Advisers, Inc., an SEC Registered Investment Advisor. Representatives may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed. C3 Financial Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.

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