Generational wealth transfer planning is more important than ever, as Baby Boomers and the Silent Generation are expected to pass down a combined $84.4 trillion in assets to younger generations 1 over the next two decades amid sweeping changes to the estate tax law. The bulk of that wealth (63%) is coming from Boomers, who plan to flow $72.6 trillion to heirs, while $11.9 trillion will go to charity.
Are you prepared for the potential changes to the federal gift and estate tax law that could impact gifting that will be implemented at the end of 2025? We all know that a proper estate plan requires time and effort to create the right plan that meets our clients' objectives. Wealthy individuals and advisors have been closely watching legislative developments at state and federal levels, as certain provisions in the federal Tax Cut and Jobs Act (TCJA) are set to expire at the end of 2025.
Assets used to establish charitable split-interest trusts for income beneficiaries other than a donor are generally excluded from the donor's taxable estate. When established properly such transfers are treated as completed gifts for gift tax purposes upon the donor's contribution to the trust, and now may be the time to take advantage of potential opportunities to retain more generational wealth, while creating a charitable legacy.
How can you help your clients thoughtfully prepare for these changes?
Wealth Transfer
Gift income to heirs by naming them as income beneficiaries of a pooled income fund (PIF, such as a U.S. Legacy Income Trust (LIT), or a charitable remainder trust (CRT). The 2024 gift and estate tax lifetime exemption are $13.61 million for single filers and $27.22 million for joint filers, allowing more to be distributed to heirs free of federal gift or estate tax while these exemptions remain available.
Wealth Transfer with an Irrevocable Life Insurance Trust (ILIT)
Gift an appreciated asset to a LIT or CRT to avoid capital gains tax, receive a deduction and to generate a lifetime income stream that can be used to fund insurance held outside of the estate in an ILIT.
Reduce your Estate with Gifting
With nearly $12 trillion expected to be gifted to your client's favorite charities over the next 20 years, it is vital to oversee a holistic plan and help them create a tax efficient way to help carry on their charitable giving legacy that allows gifts to be distributed well into the future.
Wealthy individuals seeking to distribute future gifts to charities may consider establishing a donor advised fund (DAF) or naming the DAF as the beneficiary of their assets upon their death. If there are other assets that can be left for family, qualified retirement plan assets and annuities may make better gifts to establish for giving as these are taxable to beneficiaries. Moreover, gifting these assets can reduce the overall estate tax burden.
Bottom line: The TCJA is set to expire at the end of 2025, and it takes time to create an advantageous plan for wealth creation for future generations and for a charitable legacy. Begin reviewing your client's estate to determine if they can take advantage of these higher exemptions and limits while they are available. Looking into the near future, two things are certain: the Great Wealth Transfer and probable tax implications.
1Cerulli Associates.
