Changes to the Estate and Gift Tax Exclusions Are (Maybe) Coming

ST. CROIX INSIGHTS

Changes to the Estate and Gift Tax Exclusions Are (Maybe) Coming

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC
Back view of extended family exploring the best place for their picnic in autumn. Copy space. Man is aiming at distance.

The rules governing estate and gift tax exclusions are undergoing potential changes. You need to be aware of these to ensure you maximize your tax benefits.

The 2017 Tax Cuts and Jobs Act (TCJA) significantly increased the lifetime estate and gift tax exemption, which currently stands at $13.61 million per individual and $27.22 million for married couples in 2024.

However, these provisions are set to sunset at the end of 2025, reverting to lower 2017 levels. This could potentially reduce the exemption to around $7.5 million per individual and $14.5 million for married couples by 2026, depending on inflation.

NOTE: Keep in mind that this situation is subject to change, depending on factors like the 2024 election outcomes or legislative amendments.

Given this uncertainty, families interested in preserving and passing on their wealth should be proactive in reviewing their estate plans. Waiting until the last minute could result in missed opportunities to minimize estate taxes.

The annual gift tax exclusion also increased in 2024 due to inflation, reaching $18,000 per recipient. This presents an opportunity for individuals to transfer assets tax-free, further maximizing tax benefits.

Here is an example to show a basic way to take advantage of the increased annual gift exclusion:

John and Sarah have three children and five grandchildren. In 2024, they decide to utilize the increased annual gift tax exclusion to transfer wealth to their descendants.

Using the $18,000 per recipient annual gift tax exclusion, John and Sarah can collectively gift $18,000 to each of their eight descendants, totaling $144,000 per year. Over the course of 2024, they can transfer a total of $288,000 to their children and grandchildren without dipping into their combined $27.22 million gift tax exemption.

To leverage the current higher exemptions and potentially avoid future tax implications, individuals should consider gifting strategies.

Questions to ponder include:

  • Can you afford to gift a significant amount to leverage the increased tax exclusion?
  • What assets and how much should you consider gifting?
  • Are your intended recipients prepared to receive these gifts, or should there be controls in place, such as trusts?

If you decide to proceed with gifting, there are various options available, including setting up trusts:

  • Spousal Lifetime Access Trust (SLAT): This trust allows your spouse to receive distributions if needed, providing added flexibility. It’s essential to plan and draft the trust properly to ensure its legitimacy.
  • Trust for Non-Spouse Beneficiaries: This type of trust, benefiting children or grandchildren, offers different setups, including keeping the trust-owned assets with income tax consequences falling on the trust creator. This arrangement reduces the creator’s estate without counting as a gift to the trust heirs.

For individuals whose wealth is primarily tied up in business ownership, gifting business interests may be an option. Discounts for lack of marketability and control could apply, reducing the amount of lifetime exclusion used upon gifting. Valuation methods should adhere to IRS guidelines, often requiring a qualified appraiser’s assessment.

For those with significant brokerage accounts, gifting securities to trusts or outright to recipients is another possibility. Publicly traded securities make determining fair market value straightforward. It’s essential to consider the basis in these securities, as the recipient inherits the donor’s basis for tax purposes. Holding onto low-basis securities may be advantageous for a step-up in basis upon the owner’s death.

Gifting property is also an option, typically requiring a property appraisal to establish fair market value. Similar to securities, considering the basis in the property is important, as the recipient assumes the donor’s basis for tax purposes. Some trusts may allow for substituting trust-owned assets with personal assets later on, capitalizing on a potential basis step-up.

Overall, understanding the implications and exploring various gifting strategies can help individuals maximize tax benefits while ensuring their estate planning aligns with their goals and circumstances.

As your financial advisor, I’m here to provide guidance and support as you navigate these important decisions regarding estate planning and gifting strategies. Whether you’re considering leveraging the current tax exclusions or exploring various options to pass on wealth to your loved ones, don’t hesitate to reach out. My expertise and personalized advice can help you make informed choices tailored to your financial goals and objectives. Let’s work together to ensure your wealth transfer plans align with your overall financial strategy. It’s everyone working in concert—your Estate Planning Attorney, CPA, Financial Advisor, and you—to navigate this ever-changing landscape.

 

The rules governing estate and gift tax exclusions are undergoing potential changes. You need to be aware of these to ensure you maximize your tax benefits.

The 2017 Tax Cuts and Jobs Act (TCJA) significantly increased the lifetime estate and gift tax exemption, which currently stands at $13.61 million per individual and $27.22 million for married couples in 2024.

However, these provisions are set to sunset at the end of 2025, reverting to lower 2017 levels. This could potentially reduce the exemption to around $7.5 million per individual and $14.5 million for married couples by 2026, depending on inflation.

NOTE: Keep in mind that this situation is subject to change, depending on factors like the 2024 election outcomes or legislative amendments.

Given this uncertainty, families interested in preserving and passing on their wealth should be proactive in reviewing their estate plans. Waiting until the last minute could result in missed opportunities to minimize estate taxes.

The annual gift tax exclusion also increased in 2024 due to inflation, reaching $18,000 per recipient. This presents an opportunity for individuals to transfer assets tax-free, further maximizing tax benefits.

Here is an example to show a basic way to take advantage of the increased annual gift exclusion:

John and Sarah have three children and five grandchildren. In 2024, they decide to utilize the increased annual gift tax exclusion to transfer wealth to their descendants.

Using the $18,000 per recipient annual gift tax exclusion, John and Sarah can collectively gift $18,000 to each of their eight descendants, totaling $144,000 per year. Over the course of 2024, they can transfer a total of $288,000 to their children and grandchildren without dipping into their combined $27.22 million gift tax exemption.

To leverage the current higher exemptions and potentially avoid future tax implications, individuals should consider gifting strategies.

Questions to ponder include:

  • Can you afford to gift a significant amount to leverage the increased tax exclusion?
  • What assets and how much should you consider gifting?
  • Are your intended recipients prepared to receive these gifts, or should there be controls in place, such as trusts?

If you decide to proceed with gifting, there are various options available, including setting up trusts:

  • Spousal Lifetime Access Trust (SLAT): This trust allows your spouse to receive distributions if needed, providing added flexibility. It’s essential to plan and draft the trust properly to ensure its legitimacy.
  • Trust for Non-Spouse Beneficiaries: This type of trust, benefiting children or grandchildren, offers different setups, including keeping the trust-owned assets with income tax consequences falling on the trust creator. This arrangement reduces the creator’s estate without counting as a gift to the trust heirs.

For individuals whose wealth is primarily tied up in business ownership, gifting business interests may be an option. Discounts for lack of marketability and control could apply, reducing the amount of lifetime exclusion used upon gifting. Valuation methods should adhere to IRS guidelines, often requiring a qualified appraiser’s assessment.

For those with significant brokerage accounts, gifting securities to trusts or outright to recipients is another possibility. Publicly traded securities make determining fair market value straightforward. It’s essential to consider the basis in these securities, as the recipient inherits the donor’s basis for tax purposes. Holding onto low-basis securities may be advantageous for a step-up in basis upon the owner’s death.

Gifting property is also an option, typically requiring a property appraisal to establish fair market value. Similar to securities, considering the basis in the property is important, as the recipient assumes the donor’s basis for tax purposes. Some trusts may allow for substituting trust-owned assets with personal assets later on, capitalizing on a potential basis step-up.

Overall, understanding the implications and exploring various gifting strategies can help individuals maximize tax benefits while ensuring their estate planning aligns with their goals and circumstances.

As your financial advisor, I’m here to provide guidance and support as you navigate these important decisions regarding estate planning and gifting strategies. Whether you’re considering leveraging the current tax exclusions or exploring various options to pass on wealth to your loved ones, don’t hesitate to reach out. My expertise and personalized advice can help you make informed choices tailored to your financial goals and objectives. Let’s work together to ensure your wealth transfer plans align with your overall financial strategy. It’s everyone working in concert—your Estate Planning Attorney, CPA, Financial Advisor, and you—to navigate this ever-changing landscape.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

15 + 7 =

The Importance of Planning: Create an Emergency Packet

ST. CROIX INSIGHTS

The Importance of Planning: Create an Emergency Packet

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

Life, with its twists and turns, presents us with certainties we often prefer to overlook—sickness, mortality, and the unexpected. These topics rarely claim space in our day-to-day conversations, yet they remain an undeniable reality.

In my years as a guide through the realms of financial planning and insurance, I’ve encountered numerous instances where clients faced illness, hospitalization, or life-altering diagnoses. A friend once remarked, “The stuff you’ve been selling for the last 25 years is finally coming true.”

Translation: aging is universal, and while it’s convenient to postpone contemplation on these matters, illness and mortality touch us all.

One aspect that frequently emerges, surprising in its significance, is the prevalence of passwords as vital information within our personal ecosystems. Passwords guarding phones, emails, safes, and online accounts now hold crucial importance. I’ve even layered passcodes atop passwords to fortify the shield around my online presence.

When life takes an unexpected turn, the last thing our loved ones should endure is a scavenger hunt for critical information. I call this crucial data “Waldo,” the linchpin that holds the keys to our vital documents—power of attorney, health directives, financial portfolios, insurance policies, and the roster of contacts (CPAs, attorneys, advisors).

Picture the distress of assuming funeral expenses were prepaid, only to struggle locating the necessary paperwork. Let this serve as a gentle nudge to revisit and reassess your estate plan, life insurance beneficiaries, retirement arrangements, and beyond.

Create an Emergency Packet for your family. Whether physical or digital, it should include all the vital documents in one place. Once you create it, tell your family it’s location and how to access it if it’s behind a safeguard.

Having witnessed and experienced these “Where’s Waldo” scenarios both professionally and personally, I can tell you that being prepared and making these items easily accessible is one additional way you can show how much you love your family.

(However, as I’ve told my kids and continue to remind them, they’d better treat me well; if they don’t, I have no problem playing Where’s Waldo from the grave too. I guess it’s the reverse way of me showing them I love them; if they want my passwords and information, they’ll need to work for them. There is no free lunch!)

As for where to safeguard these folders, the choice is yours. Whether in a physical safe, your desk drawer, or an agreed-upon location, communication with your loved ones about their whereabouts is crucial. Some individuals even maintain vital documents in a folder labeled “Call Brett.” The simplicity of this approach cannot be overstated. Making these documents easily accessible significantly alleviates stress and time for your loved ones during challenging times.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

5 + 1 =

Share Your Blessings: Life Lesson 43 of 50

ST. CROIX INSIGHTS

Share Your Blessings by Giving Back

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

share your blessings

Photo by Elaine Casap

Whether or not we recognize it every day, you and I are incredibly blessed in our lives. But hold on—how can I possibly know this about you when I don’t even know who you are?

Consider this: You’re reading this piece. That means you have access to the internet or someone who values you enough to have printed this for you. Either circumstance is a blessing. When you share your blessings, their impact multiplies.

How to Give Back

For many of us, a monetary gift is the easiest way to give back: we just pull out the checkbook, sign our name, and put the issue out of our minds until the next round of charitable giving. However, giving back can take many different forms. More difficult in this busy world—and therefore potentially more rewarding and more personally impactful—is giving your time and talent.

Here’s a list of just a few possible things you might do to leverage your time and talents for the greater good:

  • Volunteer at your place of worship.
  • Offer tutoring or childcare services to local schools or after-school programs.
  • Organize a book donation drive for your neighborhood or install a Little Free Library on your property.
  • Ask your local library, food pantry, or animal rescue service how you can help.
  • Contact a nonprofit organization whose mission resonates with your passion and offer your time and skills.

This list is not exhaustive. Observe the needs of your community, tap into your unique strengths, and you’ll unearth countless new ideas for giving back.

Share Your Blessings, Multiply Their Effects

However you choose to be impactful in the world, know that you aren’t just benefitting others with your service; you’re multiplying the blessings in your own life.

Some of your most significant and impactful experiences will come from helping others. Giving benefits both the giver and the receiver, and those blessings can ripple out into the community in unexpected ways.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

14 + 13 =

Bucket Lists: Life Lesson 1 of 50

ST. CROIX INSIGHTS

Bucket List Items – Why Do We Wait?

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

Over the years, I’ve created a dream board of items I’d like to achieve within the next year or two. Some of these aspirations deal with money, having more time, and how I can become more impactful with those around me. It’s a board I look at every day, using it as a constant reminder to evaluate whether my choices align with what truly matters to me.

Recently, during a lunch conversation with a client, we delved into discussions about our parents. Spending time and sharing stories it always a treat.

He told a story about inviting his brother on a fishing trip with their dad. Their dad wasn’t much into fishing, but rather enjoyed spending time with his boys. Even though dad was done fishing after a few casts, he enjoyed spending time and sharing stories. Yet, his brother felt he had to work and couldn’t make this trip work into his work schedule. After all, he had 48 other weeks he could get his work done, but this particular week looking back today, he can’t remember what was so important he couldn’t go fishing.

Within six months of this trip, their dad passed away.

Here’s a sample list of items I have on my bucket list: travel to a variety of places in Europe, New Zealand and the Galapagos Islands, volunteer in a more impactful way, tithe so I can help others, and deepen my relationship with God. Your list is going to be unique to you and your wishes.

I have a variety of friends and family that helped me achieve bucket list items over the years and I have so many more items I’d like to achieve with my time on Earth. Yet, you and I can’t wait. Time is so precious and you and have no idea if we’ll even achieve our entire bucket list.

Crafting a meaningful bucket list can be a challenging task. If need help creating a list that holds personal significance and impact, feel free to reach out. I invite you to engage in a meaningful conversation with me about shaping your bucket list, and together we can strategize on its contents.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

3 + 13 =

When Your Bus Ticket Gets Punched

ST. CROIX INSIGHTS

When Your Bus Ticket Gets Punched

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

Photo by Danist

My favorite breakfast place in my hometown of Woodbury, Minnesota, is Keys. The Italian sausage is the best. I can’t remember ever ordering anything different there for breakfast. My friend Jack enjoyed a Keys breakfast too. We’d meet up a couple of times a year to catch up and solve the world’s problems over hash browns and orange juice.
One of Jack’s passions was politics. It was a topic he would talk about for hours during our breakfasts. Yet one topic Jack never wanted to focus on in our conversations was his cancer diagnosis. I get it, but this time was different. I arrived for breakfast early to get a few things done prior to our meal, and I noticed Jack’s walking style as he entered the restaurant. He was shuffling his feet four or five inches at a time—nothing like that stride you and I would use to walk forward. I had a suspicion that this would be our last smart-talking meeting of the minds, solving the world’s problems over breakfast. And it was.

The most common question people ask me is, “What would you do?” Sometimes we just need someone as a sounding board to help us make a big decision: to retire, purchase that dream home, or finally snag that car you’ve always wanted. Sometimes, even when they know exactly what Brett’s answer would be, people do the opposite anyways. Life is short, and sometimes we throw caution to the wind. And I’m no different, even though I get in trouble with Mrs. Anderson when I purchase a $200 cooking pan or replace my holey socks when I could have just sewed them up instead. (I’ve created a financial ninja!)

Those are the easy questions to answer. But sometimes, it’s not always possible to answer these types of questions for others.

One afternoon, I was sitting on the coach next to my mom, my sister’s dog snuggled against her. At that time, Mom was going through extensive chemotherapy to reduce a tumor in her pancreas. She was in a battle for her life. The chemo and cancer were winning, and she knew it…which is why she asked, “What would you do?” I knew what she was asking. She was tired, and the battle seemed to be nearing the end. And I know Mom didn’t want to give up on living.

Assuming I have a choice when my bus ticket gets punched, I’m not sure how I’ll respond. Sure, today I can talk big, but that’s today. I simply told Mom that my ticket hasn’t been punched yet (that I know of). Many of us will eventually have life-changing decisions to make. My friend Jack and my mom had one thing in common: they both said they were grateful they got cancer. Grateful because they had time to process their situations and get their remaining days in order.

It’s a topic we talk about a little bit, but discussing it on a deeper level could help us be even more impactful with our family, our loved ones, our pastors, and even our advisors. Whatever our situation, we can all breathe a sigh of relief when we have not only our financial house in order but also our wishes on record for the host of events that could happen to us or a loved one, including sickness or death.

With all the upcoming Federal estate tax law changes I expect to come our way shortly, now is a good time to revisit your estate plan, from power of attorney to health care directives. Remember, not everyone gets a warning notice! If you need a referral to an estate planning or elder law attorney, let me know.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

11 + 7 =

Enhancing Your Wealth One Step at a Time

ST. CROIX INSIGHTS

Enhancing Your Wealth One Step at a time

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

It’s time to start enhancing your wealth one step at a time. But how do you accomplish this? Break it down and take it slowly. This doesn’t happen in one day.

Enhancing your wealth is a gradual process. Start with small decisions that build up over time to create a big impact. Take a step back and look at your life. How do you feel about money? Do you feel secure, confident, and covered? Feeling worried, get upset and feel insecure about money? Avoiding the topic altogether? Assessing your relationship with money is important before you start to take these steps.

Once you understand where you are coming from, it will be easier to begin to shift your thinking. Money is just a means to be able to do the things that you enjoy. If you aren’t enjoying your life, no amount of money is going to change that.

1. Determine your values.

What is it that sets you on fire and gets you up in the morning? What do you look forward to at the end of the day or the end of the week? Things that truly bring you joy and happiness in this world? Maybe when you think about all of this you realize that the best things in life are free for you. In that case, wonderful. However, the fact of the matter is that life costs money. Enhancing your wealth needs to be part of the equation. Even just spending time with those you love usually involves a meal, a destination, or some type of entertainment.

2. Cut out the unnecessary stuff.

Do you have a junk drawer at home? The one with miscellaneous pens, rubber bands, and free giveaways? Why is it that we hang onto so much that has no value? We live in a culture that loves stuff. Somehow stuff became a sign that someone has ‘made it’ when they have a bigger house, more toys, and a flashier lifestyle. But what in your life could you do without? Most of it!

3. Reframe your thoughts.

When you think about saving vs. spending, shift your mindset. Would you rather get an expensive coffee drink with a flavor shot and whipped cream on top every day of the week or retire to a house on the water where nobody knows your name? Life is full of trade-offs, and unless we begin to think of the future as something to consider in this moment, we will never have what we think we need down the road. Enhancing your wealth is the main goal.

4. Finally, discuss with others.

Yes, it’s taboo to talk about personal topics. But get a feel for what other people make, spend, and save. Determine whether you’d like to make your money go further for you now or in the future. Talk to trusted advisors, friends, and people who are willing to engage in conversation. Especially if you’re struggling financially, talk about it.

enhancing your wealth

In short, I am simplifying your life and saving your time by taking care of this end of the deal. You can focus on your kids’ sporting events, family birthdays, and work deadlines while I worry about your money. Know that it is in good hands.

One common thread that you and I have is 24 hours in a day. If you don’t protect your calendar, before you know it, you are no longer in charge of your schedule. We need to protect one our most important resources – time.

I’ve become guarded of my schedule over the years, so I don’t feel overwhelmed with the day to day expectations of my family and clients. I know I live by a calendar, I have to in order to keep it all straight each day. It’s even typical for my wife and I to compare our schedules to meet the demands of our family. Yet, that’s usually while we are in bed, with computers in each of our laps.

Do you have a favorite calendar resource you use to track and schedule your meetings? Do you make a checklist on there too?

The bottom line is that neither you nor I can meet with everyone. I wish I could, I truly enjoy hearing each person’s stories. However, we need to protect our time and our calendar to focus on the items that are most important to us in helping us reaching our goals – personally and professionally.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

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