Estate Tax Changes Are Coming - 5 Ways to Prepare Now to Minimize Impact on Your Wealth

For affluent couples, the most consequential change is likely to be a substantial reduction in the estate tax exemption. Presently, the exemption stands at $12.92 million per person or $25.84 million per couple as of 2023.¹ However, based on current legislation, these higher exemption amounts will revert to the 2010 level of $5 million, adjusted for inflation, which equates to roughly $6.4 million per person, or $12.8 million per married couple in 2026, representing nearly half of its present value. For estates exceeding these exemption amounts, the federal tax rate will be set at 40%, in addition to state death taxes where applicable.²

Preventing the expiration of high exemptions at the close of 2025 would necessitate an act of Congress. Given the current high levels of national debt and the government's assertive spending agenda, it is conceivable that tax increases could be prioritized in the years ahead to generate revenue. Pending any changes from the government, what can you do to prepare for an estate tax sunset? Here are 5 things you may want to consider as part of your financial strategy.

Consideration #1: Review Your Estate Plan

To make the most of the current estate tax exemption amount, it's recommended that you review your estate plan. Consider taking advantage of strategies like gifting assets to family members or creating a trust to decrease the size of your estate. Gifting is a great way to maximize the use of the current exemption amount before it potentially decreases in the future due to changes in tax laws. A trust, on the other hand, can help minimize estate taxes and protect assets for your heirs.³

Consideration #2: Life Insurance

As part of your estate planning strategy, it's worth considering the use of life insurance. Life insurance proceeds are usually not subject to estate taxes, which means that they can be utilized to pay estate taxes or provide extra assets to beneficiaries. Survivorship life insurance policies are often utilized to ensure that your heirs' tax liabilities aren't as large. By using life insurance, you can help to ensure that your beneficiaries receive the full amount of your estate while also providing liquidity to pay for any estate taxes owed.⁴

Consideration #3: Be Aware of Estate Taxes Imposed By Your State

It's important to keep in mind that state estate taxes are separate from federal estate taxes. Some states have lower exemption amounts than the federal government, meaning that your estate may be subject to state estate taxes even if it's not subject to the federal estate tax. To determine if you are subject to state estate taxes, you should consult with a financial advisor or estate planning attorney who is familiar with the laws in your state.⁵ (In Connecticut, the estate tax rate for 2023 is 12 percent regardless of the size of the estate.)

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Consideration #4: Generation-Skipping Transfer (GST) Tax

Consider utilizing the generation-skipping transfer (GST) tax, which is a tax on the transfer of assets to grandchildren or more remote descendants. This tax was created to prevent a double taxation of inherited wealth from grandparents to their children and then on to their children. The flat rate tax is currently set at 40%.⁶

Consideration #5: Charitable Giving

Consider charitable giving as part of your estate planning strategy. Charitable giving not only allows you to support causes you care about but can also offer significant benefits in estate planning. By incorporating charitable gifts into your strategy, you can effectively reduce the size of your estate, potentially lowering your estate tax liability.⁷ Additionally, charitable contributions may provide you with a tax deduction, allowing you to optimize your overall tax position while making a positive impact on society.

It's important to periodically review your estate plan to ensure that it aligns with your current wishes, family circumstances, and personal goals, especially considering changes in the law. To develop a comprehensive estate plan tailored to your unique financial situation and goals, it may be beneficial to seek the guidance of a financial advisor or estate planning attorney. Additionally, it's important to stay aware that estate tax is a political issue, which means that it may be subject to change in the future due to shifts in the political landscape or economic conditions.

Our team at Weiss, Hale & Zahansky Strategic Wealth Advisors is here to assist you in crafting a tailored and strategic financial plan that aligns an efficient estate plan with your overall financial goals, using our strategic Plan Well, Invest Well, Live Well™process. Contact us at (860) 928-2341 or schedule a complimentary consultation on our website.  

Presented by Vice President, Associate Financial Advisor, Michael Baum, CFP® RICP®. Securities and advisory services are offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.