Written by Jim Bennet, MNA Board of Directors and Montana Community Foundation Gift Planning Officer
As we approach the end of 2023, many estate planning professionals are preparing for 2025 in earnest, as potential estate tax changes loom on the horizon. This is a pivotal juncture where changes in federal estate tax laws could take center stage, prompting individuals and families to reassess their financial strategies. Let’s delve into what these potential changes could mean for you and your organization.
The Current Estate Tax Scenario
The 2017 Tax Cuts and Jobs Act (TCJA) almost doubled the lifetime individual estate and gift tax exemption from $5.6 million to $11.18 million, which has been indexed for inflation annually ever since. The 2023 federal estate tax exemption threshold for an individual is $12.92 million, and $25.84 million for a couple. The TCJA will sunset in 2025, meaning that the federal estate thresholds will drop to approximately $5.5 million for an individual and $11 million for a married couple.
While these numbers may sound out of reach for many individuals, a perfect storm has been brewing for many baby-boomers. The rise in individual retirement accounts as well as recent spikes in real estate values for Montana residents could put some at risk for up to 40% federal estate taxes.
Behind the Curtain: Factors at Play
Peering behind the scenes unveils an intricate web of political, economic, and social factors influencing potential estate tax adjustments. Legislative priorities, economic conditions, shifts in public sentiment, and budgetary considerations all contribute to the rationale behind proposed changes.
While many expect Congress to extend the sunset or perhaps write new legislation to provide elevated exemption thresholds, the reality is that anything could happen but without federal intervention, the reduction in the estate tax threshold will happen.
Impacts and Potential Paths
The reverberations of any changes in estate taxes extend across various segments of society. High-net-worth individuals might reevaluate their wealth distribution strategies, considering trusts, gifts, or other vehicles to mitigate potential tax burdens. Small business owners might explore succession planning strategies in anticipation of altered tax implications on their enterprises. Families might seek advice on preserving their legacies while navigating potential tax changes. Specific to rural Montana, many multi-generational agricultural families will have to determine which avenues for succession and estate planning will suit their needs.
Expert Insights and Perspectives
Insights from financial advisors, estate planning attorneys, economists, and other experts shed light on navigating these potential changes. Their perspectives offer invaluable guidance on adjusting strategies, seizing opportunities, and managing risks in the face of evolving estate tax laws.
Opportunities in Philanthropic Development
As 2025 approaches, it becomes paramount for individuals and families to stay informed, seek expert counsel, and assess their financial blueprints in light of potential estate tax adjustments. It also provides a unique opportunity for development officers to contact their strongest supporters to consider philanthropy as an option for lowering their estate value. Outright gifts of property can be difficult for some nonprofit organizations to handle, but beneficiary designations on IRAs, stock accounts, and bank accounts are easy to set up and could prove to be transformational for the benefiting organization.
The Montana Community Foundation recently released a study on the estimated statewide transfer of wealth from 2020 to 2030. This data shows that roughly $37 billion will change hands. Utilizing county-specific breakdowns can help illustrate donor impact when discussing estate gifts.
Conclusion
The landscape of federal estate taxes remains a fluid realm, subject to potential shifts and transformations. While the horizon of 2025 beckons with the prospect of change, staying vigilant, seeking expert advice, and crafting informed strategies will be key in navigating the potential modifications in federal estate tax laws.
