Estate Planning Trends in 2024

Presented by Marc Aarons

With 2024 in full swing, I am reaching out today with some key estate planning considerations for the year ahead. I encourage you to take a look below and do not hesitate to reach out with any questions.

Tax Changes in 2026

As you may know, the current tax exemption amount of $13.61 million is scheduled to revert to its previous $5 million threshold in 2026 (likely adjusted for inflation to $7 million). The Biden Administration has proposed further lowering the current lifetime estate and gift tax exemption amount to $3.5 million and increasing the estate tax rate from 40 to 45%.

Under current law, if someone’s estate is valued at $10 million at time of death, there would be no federal tax owed since the estate falls below the $13.61 million exception. However, this same person would likely owe taxes on $3 million of the $10 million estate if the current exemption level is sunsetted in 2026 as expected, with the $3 million taxed at 40% (or 45% if the Biden Administration’s proposal becomes law).

Depending on your goals and current financial situation, strategic planning before the exemption reduction can help maximize the current higher exemption levels, as demonstrated in the example above. Below, I’ve outlined just a few strategies to consider before 2026:

• Spousal Lifetime Access Trust (SLAT): This irrevocable trust allows one spouse to transfer wealth to the other while excluding future appreciation from estate taxes. The beneficiary spouse retains limited access to the assets, offering flexibility. However, the donor spouse cannot benefit directly from the assets in the SLAT and must have sufficient other assets for their needs. It’s important for the donor spouse to have enough funds outside of the SLAT to meet all of their financial obligations and needs.
• Credit Shelter Trust (CST): Upon the death of one spouse, a portion of their assets goes into this trust and is passed to beneficiaries after the surviving spouse’s death. The trust shields the assets from estate taxes upon the second spouse’s death. A possible downside is the potential for higher income taxes for beneficiaries, as assets in the trust receive only one step-up in basis. As a result, when beneficiaries sell these assets, they might face higher capital gains taxes due to the increased difference between the asset’s original basis and its sale price.
• Permanent Life Insurance: This type of insurance provides lifetime coverage as long as premiums are paid. Unlike term life insurance, which covers a specific period, permanent insurance not only assures a death benefit but also builds cash value over time. Policy owners can borrow against this cash value or make direct withdrawals to cover various expenses like medical bills or education costs. Including permanent life insurance in an estate plan can be beneficial as life insurance proceeds are usually exempt from estate taxes. It provides liquidity for paying any estate taxes or compensating for wealth lost to taxes. This strategy is particularly relevant for estates that might exceed the potential new exemption amount in future years due to appreciation.

Especially given the potential changes, it’s crucial to regularly review and update your estate plan to ensure it aligns with the current laws and your personal goals.

I hope this overview was helpful for you, and, as always, know that I’m here as a resource as you plan for your family’s future. Feel free to give me a call or reach out via email anytime with questions or concerns.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.