High Earners Plan To Donate Big as Tax-Cut Deadline Approaches
As the 2025 expiration date for the 2017 Tax Cuts and Jobs Act approaches, many wealthy individuals are taking steps to secure their assets before estate and gift tax exemptions are potentially cut in half. This looming deadline is prompting high-net-worth families to consider trusts, intra-family loans, and other wealth transfer strategies to maximize tax savings. With political uncertainty in the air, advisors are urging clients to act now to lock in current benefits and reduce future tax burdens on inherited wealth.
What Tax Changes Are Coming?
If the tax cuts, which former President Donald Trump implemented in 2017, expire as planned at the end of 2025, exemptions for federal estate and gift taxes will be reduced by nearly half. Currently, individuals can shield up to around $14 million from these taxes, but this limit will drop to about $7 million. This shift could significantly impact inheritance planning for wealthy families, especially those with estates on the threshold.
Why Are the Wealthy Reacting and Planning Now?
With political uncertainty ahead, many financial advisors are recommending that high-net-worth individuals begin planning immediately. Estate and financial planning strategies often require complex legal documentation and time-consuming financial adjustments. Acting now allows the wealthy to leverage current exemptions, potentially avoiding a much higher tax rate on transferred wealth.
Key Trust Strategies
For affluent families, trusts like the Grantor-Retained Annuity Trust (GRAT) and Spousal Lifetime Access Trust (SLAT) are popular. GRATs allow individuals to pass high-yielding assets to beneficiaries with minimal tax burdens, while SLATs enable spouses to shift assets out of their estates for tax savings. These tools also offer beneficiaries access to appreciated assets tax-free, preserving wealth across generations.
Other Wealth Transfer Tactics
In addition to trusts, intra-family loans and discounts on non-publicly traded assets provide tax-efficient transfer options. Intra-family loans allow family members to lend assets at below-market rates, making these assets grow with less tax liability. Non-publicly traded assets, when gifted, are sometimes discounted due to limited marketability, making them ideal for minimizing estate value before transfer.
Will the Tax Cuts Be Extended?
Extension of the tax cuts depends on Congress and the next administration. While former President Donald Trump favors extending individual income and estate tax cuts, Vice President Kamala Harris has proposed extending some of the individual tax cuts but implementing higher taxes on wealthy Americans. This uncertainty drives proactive wealth transfers now, since many wealthy individuals anticipate that even slight shifts in Congress could affect future exemptions and tax rates.