Now that Donald Trump has won his return to the White House, the future of the estate tax is a little clearer.

The estate tax, along with the rest of the Tax Cuts and Jobs Act, is set to expire at the end of 2025. If the estate tax exemption returns to the amount before the TCJA, it will represent the largest increase in inheritance taxes in 85 years. , said John Resnick of the Resnick Group.

Based in Naples, Florida, John and his wife Billie focus on estate planning, life insurance consulting and business succession. They have been busy in recent months developing estate plans for wealthy clients.

Customers who can breathe a little easier now that Trump is back in power. With Republicans poised to control the Senate and likely the House of Representatives, the party will have broad power to extend the tax cuts.

Beyond that, it’s hard to say for sure, Billie Resnick said.

“The length of a stay will depend on one of several outcomes. With the GOP gaining majority control, the TCJA could be extended by a simple majority,” she explained. “An unknown factor is whether the growing deficit will deter enough Republicans from voting to extend the tax cuts, especially with all the other proposed tax relief.”

A life insurance problem

The TCJA more than doubled the maximum amount families can give to their beneficiaries without incurring federal gift or estate taxes. This applies to gifts made during one’s lifetime or as part of an inheritance.

The gift and estate tax exemption is adjusted annually for inflation and amounts to $13.61 million for a single person in 2024. Unless Congress acts to Expanding the current language, the estate tax will return to 2017 levels, or about $7 million.

Even with the higher estate tax threshold of $13.61 million, it’s not difficult for successful business owners to reach that figure, Resnick said. If it comes to $7 million, it will have a significant impact on estate planning, he added.

“A lot of these families will be heavily impacted because they typically don’t keep a lot of cash in their bank accounts,” Resnick said. “Worse still, inheritance taxes are due in cash nine months after death, so trying to pay the tax can be devastating for some. »

Life insurance is a popular strategy to help wealthy clients avoid leaving their heirs with painful inheritance tax bills.

An irrevocable life insurance trust is created outside of the client’s taxable estate, and the trust’s income is used to purchase life insurance for the parents, Resnick said. Upon their death, the life insurance proceeds are paid 100% tax-free to the trust that is the designated beneficiary. The trust can purchase assets or loan money to the estate, which often does not have the cash flow to pay estate taxes.

“If life insurance is designed correctly, the cost of the death benefit can be 50 to 80 percent less than the cost of the estate paying the tax using its own resources,” Resnick said. “All of this is done 100% tax-free. Life insurance in an ILIT can truly be one of the most powerful strategies available in the estate tax code.

“Extremely high” concern

Before the election, KPMG heard from clients with an “extremely high” level of concern, said Tracey Spivey, partner and head of the firm’s private company tax practice.

There are other strategies to mitigate the potential estate tax bill, Spivey noted.

“Many of our customers are evaluating, if they haven’t already, whether or not it makes sense for them to proactively donate in order to utilize these high exemption amounts,” he said. he declared. “The IRS came back and said there would not be this concept of recapture in play for those who do and a lot of our customers are wondering whether or not they are going to go ahead and make donations significant taxable…before the end of 2025.”

© All content copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the express written consent of InsuranceNewsNet.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other topics in more than 20 years of daily journalism. John can be contacted at (email protected). Follow him on Twitter @INNJohnH.