Podcast Summary: The Practical Planner – "How Election Results Can Impact Estate Tax Strategies"

Release Date: December 4, 2024

In this insightful episode of The Practical Planner, hosts Thomas Coleman, Anne Rhodes, and Dave delve deep into the intricate relationship between election outcomes and estate tax strategies. They explore the evolving landscape of estate planning in light of recent political shifts, providing valuable guidance for advisors and high-net-worth individuals navigating these changes.

1. Introduction

Thomas Coleman opens the episode by highlighting the ongoing uncertainty surrounding estate tax legislation. He emphasizes the necessity of understanding how recent election results influence estate planning strategies.

Thomas Coleman [00:00]: "Everything in our world has been prepared for estate tax changes to happen... we know who passed all these elections, got voted in."

2. Election Impact on Estate Tax Exemptions

Dave provides a historical perspective on the anticipated changes to the estate tax exemption, initially expected to decrease from $13.61 million to $7 million following the Tax Cuts and Jobs Act. However, with the recent Republican majority in the House, Senate, and Presidency, there's a strong possibility that the exemption levels will remain higher and continue to adjust for inflation.

Dave [01:05]: "The Republicans now likely... the estate tax exemption... is going to remain far higher and it's probably going to keep increasing with inflation."

3. Shifts in Estate Planning Strategies

The hosts discuss the implications of maintaining higher exemption limits. Specifically, they address how strategies like gifting assets to stay below the estate tax threshold may need reevaluation. Dave warns that while high-net-worth individuals will still benefit from such strategies, those on the cusp of the exemption limit might find their previous planning less advantageous.

Dave [03:10]: "If you're still under the estate tax threshold, that's not going to do you a whole lot of good."

4. The Emphasis on Flexibility

Anne Rhodes underscores the importance of flexibility in estate planning amidst uncertain legislative environments. She points out that rigid funding formulas, such as those for marital and bypass trusts, may no longer be optimal given the higher and potentially rising exemption amounts.

Anne Rhodes [04:10]: "You should really do the homework of figuring out what happens upon your client's deaths now because potentially you still have these inflexible funding formulas."

5. Challenges with Irrevocable Trusts and SLATs

The conversation shifts to specific estate planning tools like Spousal Lifetime Access Trusts (SLATs) and irrevocable trusts. Thomas shares his experience advising clients against premature estate tax planning, especially younger clients who might not need such strategies immediately. The trio warns against over-reliance on SLATs due to their inflexibility and potential complications, such as unforeseen life events like divorce.

Thomas Coleman [08:58]: "Unless I was like, wow, I sold my business for like hundreds of millions of dollars... I don't think I would really consider doing estate tax planning unless it was potentially SLATs."

Anne adds cautionary advice on irrevocable trusts, emphasizing the difficulty of unwinding them and the possible legal challenges if beneficiaries contest the trust.

Anne Rhodes [13:35]: "Trust irrevocable trust you should never really step into lightly because... you have to take them away would require an agreement among the beneficiaries potentially, or even going to court."

6. Potential Future Tax Changes

Thomas and Dave speculate on other tax-related legislative changes that could impact estate planning, such as adjustments to corporate tax rates and qualified business income deductions. They express skepticism about radical tax reforms like abolishing income taxes, suggesting instead that income tax structures might remain relatively stable with minor adjustments.

Thomas Coleman [14:42]: "I absolutely don't think that's true. I also don't think something like that is going to happen."

7. Additional Tax Considerations: Bonus Depreciation and Opportunity Zones

The discussion broadens to include other tax strategies that may undergo changes. Thomas highlights the potential return of 100% bonus depreciation, which would be a boon for real estate investors. Additionally, he mentions the possible extension or modification of Opportunity Zone investments to enhance their attractiveness.

Thomas Coleman [20:34]: "Bonus depreciation has been phasing out. My assumption was like, that was something that he put in... it defers capital gains for X number of years."

8. Final Thoughts and Conclusions

As the episode wraps up, the hosts collectively advise maintaining a flexible approach to estate planning. They encourage advisors to stay informed and adaptable, emphasizing that the only certainty in estate tax legislation is its variability.

Thomas Coleman [20:34]: "Let's remain flexible... planning is going to be a lot of fun next year."

They also tease future episodes, including potential Q&A segments, to address listener questions and evolving topics in estate planning.

Key Takeaways

• Political Influence: Recent elections have significant implications for estate tax exemptions, with the current political climate favoring higher and more stable exemption levels.

• Strategic Adjustment: Estate planning strategies, especially those related to gifting and trusts, must be reassessed in light of potentially prolonged higher exemptions.

• Flexibility is Crucial: Emphasizing adaptable estate planning tools can better serve clients amidst legislative uncertainties.

• Caution with Irrevocable Trusts: While beneficial for tax purposes, irrevocable trusts and SLATs come with inflexibilities and potential complications that must be carefully considered.

• Stay Informed on Tax Changes: Beyond estate taxes, other areas like bonus depreciation and Opportunity Zones may also experience legislative shifts that impact long-term planning.

This episode serves as a comprehensive guide for advisors and clients alike, navigating the complexities of estate planning in a dynamic political and legislative environment.