A Proactive Plan Is Essential

Tax Law changes due to take effect in January 2026 will impact high-net-worth individuals with around $7 million and married couples with around $14 million or more in assets.

Failing to prepare ahead of time for scheduled changes in estate taxes could cause these families to miss out on substantial tax savings. The Tax Cuts & Jobs Act (TCJA) that the U.S. Congress passed in 2017, calls for the higher estate tax exemptions that it put in place to sunset on December 31, 2025.

The TCJA raised the estate tax exemption to record highs, doubling the basic exclusion amount for tax years in 2018 through 2025, with the annual adjustments to account for inflation.

The Impact Per Family

For instance, married couples with estates worth up to $27,220,000 currently do not incur any federal estate tax liability. But as of January 1, 2026, “only about $14 million of that same couple’s estate would be exempted from federal estate tax, so they would owe about $5.2 million in taxes, based on a federal estate tax rate of 40%,” said David Work, Managing Director of Hightower Advisors’ Estate and Financial Planning Group.

While it may seem that there is ample time to prepare, Work cautions against waiting until the middle or latter part of 2025 to engage an estate planning attorney. Almost three million individuals in the U.S. will be impacted by this change, therefore a proactive plan is essential to maximizing the exemption without getting stuck in the backlog of affected households.2

Unless Congress moves to extend the estate tax exemptions at their current level, high-net-worth couples and individuals will want to discuss possible tax strategies with their financial, legal, and tax professionals. There are a myriad of estate planning strategies that protect assets, but the successful creation and implementation of a plan may take several months to execute.

Strategic Thinking

Individuals should be discussing different strategies and outcomes with their advisors to identify gaps and opportunities that utilize their exemption while complimenting their existing plans and legacy goals. Below are some strategies to consider:

  1. Lifetime Gift Tax Exemption: Gift up to the maximum amount allowed under the exemption to make full use of the exemption before the sunset and decrease your tax burden.
    Consideration: Work with your financial advisor to ensure that you retain enough assets in your estate to support your lifestyle and other financial goals.
  2. Spousal Lifetime Access Trust (SLAT): This irrevocable trust is used to transfer money and property from one spouse’s estate into a trust benefiting the other spouse. As an estate planning tool, each spouse can create a SLAT that holds the maximum amount of funds allowed under the exemption, naming the other spouse as the beneficiary and potentially the trustee. This provides each spouse with limited access to funds while removing assets outside of their taxable estates.
    Consideration: Establishing SLATs involves complexities associated with time, determining appropriate assets to use, administration and tax implications. Also, the documents “must be drafted by an experienced attorney, to avoid the pitfalls of the reciprocal trust doctrine, which would cause the value of each trust to be included and taxed in the estate of the spouse who created the trust, and therefore subject it to estate tax when that spouse dies,” Work said.
  3. Irrevocable Life Insurance Trust (ILIT): These trust structures are used to control life insurance policies while protecting the death benefit proceeds from estate taxes.
    Consideration: This trust can leverage annual gifting exclusions and a portion of the current exemption while creating liquidity to pay future estate taxes.
  4. Private Placement Life Insurance (PPLI): This single solution strategy combines the income tax benefits associated with an ILIT with the opportunity to invest in asset classes such as alternative investments.
    Consideration: This is a complicated structure so it is critical to work with knowledgeable financial, legal, and tax professionals to ensure that it fits within the greater estate plan.

These are just some of the strategies that can be used to make the most of the estate planning exemption before the sunset of the TCJA. Each tactic involves varying degrees of complexity and must be used on a case-by-case basis. “We don’t know what the future holds, but there is never a downside to reviewing your existing plan and evaluating the right course of action before it’s too late,” Work said.

Hightower Advisors’ Estate and Financial Planning Group helps craft proactive plans that carefully consider all of the critical details and the latest legislation. Reach out to your advisor to get started.

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Hightower is a group of investment professionals registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices or other information contained in this research is provided as general market commentary; it does not constitute investment, tax or legal advice. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Hightower or any of its affiliates shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. Forecasts represent median expectations and actual returns, volatilities and correlations will differ from forecasts. These materials were authored by Fiducient Advisors and are being used with their permission. This document was created for informational purposes only; the opinions expressed are solely those of the author and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

Citations

irs.gov, “Estate and Gift Tax FAQs,” Page Last Reviewed or Updated: 05-Dec-2023

2 ubs.com, “Global Wealth Report 2023,” 2023

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6 Meridian is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. 6 Meridian and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. 6 Meridian and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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