Get Outta Town By Sundown… Or Sunset?

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A recent poll of over 3,000 undergraduate college students conducted by the American Council of Trustees and Alumni found most woefully ignorant of the basic elements of the U.S. Constitution. For example, only 28 % knew that the 13th Amendment ended slavery in the country. Worse, a recent nominee for the U.S. District Court was asked in the Senate hearing the purpose of Article II of the Constitution. The candidate was unable to answer correctly but, nonetheless, now sits on the bench.

Oh well. All that concerns us today concerning our founding document is Article I, Section 7, which begins, “All Bills for raising Revenue shall originate in the House of Representatives…”

So here is where the bear sits regarding the most important current estate planning issue for your high-net-worth clients:
  • The Tax Cuts and Jobs Act (“TCJA”) currently allows every taxpayer a lifetime exemption that could protect $13,900,000 of his or her assets from estate and gift taxation. So, with proper planning a married couple can protect almost $28,000,000.
  • Under TCJA, that opportunity is scheduled to drop by 50% on January 1, 2026.
  • Speculation has swirled before, during, and after the 2024 election whether the “exemption sunset” would be eliminated allowing the high protection limits to continue.
  • Most felt that a government controlled by the Republican party would be more sympathetic to extend the high exemptions along with other provisions due for a sunset under TCJA.
  • The Republicans now hold (depending on 2 special elections) a 1-3 vote majority in the 435-seat House of Representatives (where a revenue bill must originate).

Given all the inclusions and issues involved in a tax bill, and all the bargaining and trade-offs they create, the fate of high-exemption planning may be as uncertain as before.

But consider this strategy:
  • Creation of a common irrevocable grantor trust to which a loan of assets worth up to the amount of the current exemption can be made. A suitable trust may already exist and, if not, most high-net-worth clients ought to have one on general principle.
  • This allows the taxpayer to adopt a wait-and-see approach regarding what Congress may or may not do.
  • If by, say, late December, the exemptions are unlikely to be extended the taxpayer can forgive the loan and the assets remain in the trust as a lifetime gift protected by the high exemption before it drops on New Year’s Day.
  • If the high exemptions are allowed to remain your client can delay decisions to a later time keeping control over the assets under the loan arrangement.

Call to arrange a more full discussion of the additional advantages of this simple and straight-forward solution that addresses the uncertainty of the times. You may include your clients and their advisors, if needed.

Tom Virkler, JD
Director, CPS Advanced Markets
706.614.3796
tom@cpsadvancedmarkets.com