Maximizing Estate Planning Opportunities in an Election Year

When voters head to the polls in November to cast their votes, many may not realize that this year is the ideal time to take advantage of the current estate tax exemption through lifetime gifts and estate planning strategies.

The federal estate and gift tax exemption currently stands at an all-time high of $13.61 million per individual, meaning that a person can give away $13.61 million ($27.22 million per married couple) to their family (or others) free of gift or estate tax. However, this generous exemption is scheduled to drop dramatically to around $7 million per individual ($14 million per couple) on January 1, 2026, without further action by Congress.

If you have a sizable estate of at least $7 million, or if you have made more than $7 million in reportable taxable gifts in the past, time is of the essence to explore gift and estate planning opportunities to take advantage of the increased exemption now. Estate and gift planning can be a lengthy, multi-step process, so we recommend exploring the strategies suggested below with our firm’s estate and gift tax department and your estate planning attorney as soon as possible to ensure there is enough time to implement these strategies.

Ways to Leverage Gifting

There are several strategies to consider that can reduce the size of your taxable estate, benefit your family, and achieve your charitable goals. Let’s explore a few of these common estate and gift planning strategies:

• Outright gifts. The simplest approach is giving directly to your loved ones. You can use the annual gift tax exclusion, which allows you to give up to $18,000 per person annually ($36,000 for married couples splitting the gift) without the gift counting against your lifetime exemption. Additionally, you can also pay someone’s medical or educational expenses (as long as you pay the provider directly) without using any of your exemption.
• Spousal Lifetime Access Trusts (SLATs). A SLAT is a type of irrevocable trust for the benefit of your spouse and/or children. A SLAT is typically used by married couples with a net worth in excess of $30 million. The assets gifted to the trust are removed from your estate while still allowing your spouse access to those assets if needed. With a SLAT, you (the grantor) continue to pay the income tax on the assets in the SLAT while also retaining the ability to swap assets in the trust. The assets in the SLAT—and the appreciation if the assets grow in value—are not subject to Federal estate tax upon either spouse’s death.
• Intentionally Defective Grantor Trusts (IDGTs). An IDGT is a type of irrevocable gift trust where you continue to pay the income tax on the trust assets. With an IDGT, you can transfer assets to a trust for your children or grandchildren, removing the assets from your estate. Similar to a SLAT (above), you remain responsible for paying the income tax, which is a tax-free gift, on the trust income to allow the trust to grow tax-free for the benefit of your beneficiaries. You can also sell assets to the trust in exchange for a promissory note and effectively freeze the value of the assets for estate tax purposes.
• Irrevocable Life Insurance Trusts (ILITs). An ILIT is a type of irrevocable trust that owns a life insurance policy on your life or the joint lives of you and your spouse. You fund the trust to pay the life insurance premiums while also removing the policy’s death benefit from your estate upon your death. This strategy provides tax-free benefits to your heirs and offers immediate liquidity for estates with an estate tax liability. This type of trust is especially well-suited to those who own substantial business or real estate assets (i.e., illiquid assets) to ensure your heirs do not need to sell important assets to pay the estate tax upon your death.
• Gifting Using Discounts: Assets, such as business interests and real estate investments, can make terrific gifts because of the ability to obtain a discount on the value of the gift. For instance, if you hold a minority interest in a closely held business, you may be able to receive a discount on the value of your interest when it is gifted to a trust or a family member. The discount is obtained through a formal valuation process with a qualified appraiser. With this strategy, you can make a gift “at a discount,” effectively removing any additional post-gift appreciation from the value of the asset.

Final Thoughts

These are just a few of the more common gifting strategies that you can use to optimize your estate planning in an election year. Each strategy has its own advantages, disadvantages, and complexities and is not a one-size-fits-all. As a result, it is crucial to get personalized advice from Friedman + Huey’s estate planning professionals and your attorney to ensure these strategies align with your goals and the unique needs of your family. The clock is ticking, and with the tax exemption thresholds set to change, now is the time to act to secure your family’s financial future.