This is the biggest year-end tax issue for high-net-worth purchasers, advisor says

As monetary advisors weigh year-end tax planning methods, there is a looming issue on the horizon for high-net-worth purchasers.

Several key provisions from the Republicans’ signature 2017 tax overhaul are slated to run out after 2025, together with a better federal gift and estate tax exemption that permits extra rich Americans to switch tax-free property to the subsequent technology.

Also often called the “fundamental exclusion quantity,” the exemption rises to $13.61 million per particular person or $27.22 million for spouses in 2024. These are the tax-free caps on presents throughout life or at loss of life.

But these limits will drop by roughly half in 2026.

It’s “the biggest issue that we’re speaking with purchasers about proper now,” mentioned Robert Dietz, nationwide director of tax analysis at Bernstein Private Wealth Management in Minneapolis.

“You’re going to have much more individuals with property tax points,” mentioned licensed monetary planner Ashton Lawrence, director at Mariner Wealth Advisors in Greenville, South Carolina. “You’re speaking about probably 40% of your property being taxed.”

There are nonetheless about two years till the provision sunsets, however Dietz mentioned sure property planning methods take various months or much more than a yr to implement.

“What we’re making an attempt to get throughout to purchasers is they positively shouldn’t be ready” till 2025 to make use of the exclusion, he mentioned.

One approach for married {couples} to leverage the increased exemption is to start removing assets from their estate now by way of lifetime presents, specialists say.

For married {couples} who will likely be affected by the decrease exemption in 2026, the “primary” technique is to make use of up one partner’s increased exclusion earlier than the provision sunsets, Dietz mentioned.

In some instances, spouses are tempted to separate presents down the center, solely utilizing half the present exemption every, which would not optimize the briefly increased restrict.

“The actuality is you must give away greater than half to see any profit from the reward by way of the exclusion going away,” Dietz mentioned.

If purchasers aren’t snug making irrevocable presents now, it is nonetheless doable to be proactive earlier than 2026 by opening and funding a belief. But they’ll preserve management of the property with a “promissory be aware” that outlines a plan to obtain the property again, he defined.

Congress might nonetheless intervene and prolong the property and reward tax exclusion past 2025. However, it is not possible to foretell amid different legislative priorities.