Up in the Air: Charitable Planning in a Shifting Tax Landscape
As professional advisors, you are acutely aware of the complexities your clients face, especially with an upcoming election. In particular, the looming sunset of key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 has created a tremendous amount of ambiguity for financial and estate plans.
For many taxpayers, the looming sunset of the TCJA’s higher estate tax exemption may be top of mind. Unless Congress intervenes, the exemption is set to fall after December 31, 2025, from roughly $27 million per couple to approximately $14 million per couple (depending on inflation adjustments).
No one has a crystal ball, and it is impossible at this point to know whether or when you should implement planning strategies to address potential changes in the law. Nevertheless, if some of your clients are among those who would be affected by the estate tax exemption’s precipitous drop, it’s important to know that charitable strategies can fit nicely into a gifting plan that would help offset the sunset’s impact.
If you’re a business owner, for example, initiating a gifting program can be particularly advantageous. Transferring shares of the business to heirs while the exemption is higher, along with gifts to a donor advised fund (DAF), or other funds at HCF, can reduce the taxable estate’s value. This approach not only facilitates a smooth business transition, but also may align with your client’s philanthropic goals, irrespective of future tax law changes.
Along those lines, some families may decide to lean into annual exclusion gifts ($18,000 per gifting spouse per recipient in 2024) to family members and other individuals to reduce taxable estates without eating into the lifetime gift and estate tax exemptions.
If your clients are considering ramping up their annual exclusion gifts, they might also consider adopting a parallel strategy for charitable gifts. Gifts to charities are deductible for gift and estate tax purposes (as well as for income tax purposes) and therefore will also reduce the value of your taxable estate without using the exemption. Some philanthropists report that they like the idea of making annual exclusion gifts to family members, and, while they’re at it, making stock gifts of an equal amount into a DAF at HCF.
Given the uncertainty about what might happen with the estate tax exemption, some people are updating their estate plans to increase a bequest to a DAF or other charitable entities. This not only helps to soften the impact of estate taxes, the bequest can be adjusted during lifetime as planning goals and estate tax laws evolve.
Whatever you and your clients decide, HCF is here to support you. Our team is ready to provide expertise and guidance to ensure that your clients’ charitable planning aligns with their overall financial strategies in this shifting tax landscape.
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