Estate Planning Opportunities: Urgency, Control and Tax Considerations
The clock is ticking on estate planning.
With unpredictable macroeconomic trends in a post-pandemic, post-stimulus world, clients face new challenges. Rising deficits and potential tax law changes create an immediate need for clients to secure their financial future.
Wealth transfer is no longer a conversation that can be put off until the next annual meeting.
Clients know the economic landscape is ever-changing. For some, that leaves them with planning paralysis. But that’s why it’s more important than ever to have a sense of urgency around financing techniques for estate planning solutions.
Let’s start by addressing clients' concerns about control and tax savings.
The Changing Tax Landscape
In a recent webinar, we highlighted the impact of the political landscape and the impending sunset of a key provision of the Tax Cuts and Jobs Act at the end of 2025.
The 2017 Tax Cuts and Jobs Act doubled the lifetime estate and gift tax exemption. Individuals moved from $5.6 million to $11.18 million. Couples were capped at $22.36 million. Indexed for inflation, the 2023 exemption stands at $12.92 million per person and $25.84 million for a married couple.
With numbers like that, there is a growing perception that the estate tax primarily affects the ultra-wealthy. But the current law eliminates that double as of January 1, 2026. It is crucial to recognize that this shift will impact the percentage of estates paying taxes.
Even if clients' net worth doesn't exceed the new limits initially, their wealth will continue growing during their lifetime. Now is the time to initiate a discussion. Now is the time to underscore the potential implications of increasing personal wealth combined with rising levels of public debt.
Navigating the Control Dilemma
Estate planning is a constant balance between tax savings and control over assets. Many clients with substantial assets, especially business owners, are reluctant to relinquish control.
Strategies that incorporate trust language can offer flexibility while addressing control. Try using a spousal access provision or a Spousal Lifetime Access Trust (SLAT).
Another way to address this issue is through financing techniques. If clients can adjust their plans, it can take concerns off the table.
The Role of Financing Techniques
Some clients may be hesitant to make large irrevocable gifts. Financing can offer alternative techniques to test the waters before committing.
There are two primary client profiles to highlight.
The first prefers a wait-and-see approach. They may be unsure about potential tax changes and macro planning factors. They want flexibility. Try techniques like private financing and wait-and-see split-dollar arrangements. They can adjust or withdraw from their plans if necessary.
The second profile includes clients who need leverage. Real estate investors. Individuals with appreciated assets. Clients with specific gifting limitations. For clients like these, different financing structures can cater to individual needs. Look at solutions such as commercial premium finance or private split dollar. Loans combined with private financing arrangements could be a good technique as well.
Mitigating Concerns in a Shifting Interest Rate Environment
Given rising interest rates, clients may express concerns about missed opportunities. They may not think financing remains a viable option. However, it's crucial to emphasize that financing is not dead but evolving.
It comes down to understanding the client's asset portfolio.
A client’s portfolio will determine the most suitable financing structure.
It's important to note that interest rates fluctuate cyclically. With long-term planning, strategies can be designed to be interest rate agnostic. You may want to try asset sales to intentionally defective trusts or lump-sum loans. Wait-and-see split dollar arrangements can also work in a changing interest rate environment.
Keep It (Relatively) Simple
Estate planning discussions are intricate — but don’t have to be complicated.
Understand client mindsets. Look at their asset portfolios and evolving interest rates. Guide clients toward effective estate planning strategies that align with their unique circumstances.
By illustrating the impact of evolving tax provisions, you can motivate clients to lock in their goals.