Planning for a sunset: Lock in a higher exemption, unlock a legacy

Without additional action by Congress, our current estate tax laws will sunset at the end of 2025, resulting in a dramatically reduced federal estate tax exemption - from more than $13.6 million per person in 2024 to approximately $7 million in 2026 (this includes adjustments for inflation). This change would affect many high net-worth individuals and families, likely exposing many more estates to federal estate taxes.

Of course, it’s impossible to predict whether Congress will enact legislation to prevent this sunset. Even so, advisors can prepare for client discussions and start considering estate planning strategies now, especially techniques that incorporate multi-generational gifts and charitable planning.

Indeed, for a client who is charitably-inclined, making larger lifetime gifts to charity and arranging for charitable bequests will help reduce the client’s taxable estate because of the charitable estate and gift tax deduction. For example, donor advised and/or endowed funds established at Lincoln Community Foundation are flexible and effective ways for your clients to accomplish their charitable goals and lower taxes by way of both lifetime and estate gifts. 

For some clients, you may wish to begin exploring a comprehensive, multi-generational wealth transfer plan, potentially using key tax-planning vehicles, such as:

Charitable lead trust
Charitable lead trusts (CLTs) may be particularly effective in the current environment. These trusts can provide income to your client’s fund at LCF for a set time period, with the assets then passing to family members. Right now, the higher exemption amount allows for potentially significant initial funding of such trusts. This is because the value of the remainder interest counts toward the client’s estate and gift tax exemption.

Generation-skipping trust
A generation-skipping trust is an irrevocable trust that can benefit a client’s grandchildren and later generations. This trust utilizes a client’s generation-skipping transfer (GST) tax exemption (which parallels the estate and gift tax exemption). This type of trust could allow a client to take advantage of the higher exemption before it potentially decreases in 2026. It is possible under some states’ laws for these trusts to continue for many generations in a “dynasty” format, such that each generation benefits from the trust’s income (and potentially principal for health and education) without the trust’s assets being included in the beneficiaries’ estates for tax purposes. 

Multi-generational fund at LCF
Alongside a charitable lead trust or generation-skipping trust, or as a standalone, a client can establish a donor advised fund at LCF that can function much like a family foundation, with successive generations serving as advisors. Or the client may ask us to step in after the first or second generation and recommend grants from the fund, carrying on the tradition of supporting the causes and organizations that have been most important to the client during their lifetime. 

The LCF team looks forward to working with you to achieve your clients’ long-term charitable goals, even in the midst of uncertainty concerning the estate tax laws.