When most people hear the words “estate planning,” they typically tune out the information that follows, assuming this process applies only to the ultra-wealthy. Contrary to common thinking, the benefits of estate planning are not at all exclusive to this group. Most, if not all individuals and married couples should consider estate planning in a broader sense as a part of their future tax plan.
What is estate planning?
Estate planning is setting goals and objectives and developing strategies for disposing of assets and providing for family members, friends, and charities at death. It applies to anyone who owns property or has money or investments, as all contribute to one’s estate. Estate planning includes tax planning as well as non-tax considerations.
Estate planning is an increasingly important topic due to our current political landscape and the upcoming presidential election. The potential change of administration and control of Congress could lead to changes in the Internal Revenue Tax Code. There is considerable attention being paid to the current federal estate and gift tax lifetime exemption of $13.61 million, as it is set to sunset on December 31, 2025. This means the exemption will revert to the $5 million amount from 2010, but adjusted for inflation or around $7 million, something a Democratic candidate is likely to support. Additionally, there are talks of increasing the top marginal income tax rate and taxing capital gains as ordinary income for high earners. On the other side of the aisle, former President Donald Trump proposes extending the current gift and estate tax exemption.
We also want to direct our attention to the mid-affluent-individuals and married couples poised for significant asset growth. Based on the average annual return of the S&P 500 of 7.3 percent, an estate’s value could double every decade, essentially shifting what is currently a nontaxable estate to a taxable estate.
Such uncertainty provides for a wide variety of estate planning scenarios. It is crucial to act soon and prior to December 2025 in the event the current gift tax and estate exemptions are reduced. There are significant considerations and planning that will need to take place. We urge you to consider planning, not based on where the estate stands today, but where the estate will likely be in the future. Reach out to your Tronconi Segarra & Associates advisor today, or contact Lisa Mrkall, CPA, MBA, Partner. She can be contacted by email at lmrkall@tsacpa.com or 716.633.1373.
