The combination of higher transfer tax exemptions, low interest rates and a reduction of asset values has created a unique opportunity for creative and effective estate and financial planning strategies. Clients should consider exploring these advanced strategies to help reach their goals and financial objectives.
One area many clients are focusing on is the current doubling of federal gift, estate and generation-skipping transfer tax exemptions, which are set to sunset to $5 million (adjusted for annual inflation) after December 31, 2025. Currently, the individual exemption is $11,580,000, so a married couple has over $23 million of available exemption, for tapping into significant lifetime planning opportunities.
A major challenge many clients have is balancing the act of maintaining income and control of their asset base while minimizing estate transfer tax. The difference in estate taxes for this extra $11.5 of exemption may be in the area or 50% or $5.75m. Managing the client’s desire to minimize estate transfer tax, while maintaining sufficient income creates potentially conflicting goals. Some clients may want to take full advantage of the $23m increased exemption, while others may be more concerned about how such gifts can adversely affect cash flow. Perhaps using the higher exemption of $11m on one of the married individuals (knowing that the second spouse will still have the ability to plan and use their then current exemption) may be the right approach. A cash flow analysis and modeling can certainly help our clients thoughtfully work through these options.
Proposed IRS regulations have clarified that if the exemption level is lower at a client’s passing than when a gift was made, no “clawback” will occur.
With the combination of increased exemptions, planning opportunities, low interest rates and valuations, we are uniquely positioned to take a fresh look at our clients’ financial and estate planning objectives.
Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Brix Partners is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. CRN202204-263829