Be Aware of Impending Estate Tax Pitfalls to Save Significant Money
September 23, 2024
By Jim Nalley, CPA/ABV, CFF, CVA
Jim Nalley
CPA/ABV, CFF, CVA
Estate tax planning is becoming more crucial due to two major factors.
Reduction of Lifetime Estate and Gift Tax Exemptions
Current gift tax exemptions, set by the Tax Cuts and Jobs Act (TCJA) of 2017, will end on December 31, 2025. As of tax year 2024, individuals may transfer up to $13.61 million tax-free ($27.22 million for couples). After 2025, these exemptions are scheduled to revert to pre-TCJA levels of about $6.4 million per individual ($12.8 million for couples), including adjustment for inflation. Uncertainty surrounding potential legislative changes adds a layer of complexity to this issue. Future administrations and Congress may choose to alter exemption levels, extend the current higher exemptions or allow the scheduled reduction to stand. Thus, flexibility in estate planning is critical, ensuring your strategy can adapt to changing laws. To minimize future tax burdens, individuals with substantial estates should consider making significant gifts or transfers in advance of a potential exemption decrease.
Supreme Court Ruling in Connelly v. Internal Revenue Service
The Court, in its unanimous ruling, concluded company-owned life insurance proceeds forthcoming upon the death of a shareholder are an asset of the company and not offset by a liability created by the company's obligation to redeem the estate’s shares. The Court’s interpretation in this case may have far reaching impact for business owners with redemption agreements funded by life insurance proceeds on policies owned by their company. Cross-purchase agreements funded by life insurance owned outside of the company may be an option, but it would be wise to dust off those redemption buy/sell agreements and consult with your attorney or tax advisor on how best to avoid an additional estate tax burden due to this issue.
If you have a high-net-worth estate, address these issues now to avoid future pitfalls and realize potentially significant tax savings!
Published in ABI Business Monthly (in Corridor Business Journal and Quad Cities Business Journal), September 23, 2024.