For high-net-worth families, many legal strategies are employed to preserve wealth and minimize taxes. However, tax laws continually change and can impact new and existing estate plans. For example, the SECURE and SECURE 2.0 Act present challenges and opportunities in high-net-worth estate planning and wealth transfer across generations. Other changes include portability election, lifetime gift tax, generation-skipping transfer (GST) tax, and more.
Many changes increase the tax-free transferable amounts for three more years, but without further legislation, these will decrease dramatically on January 1, 2026. Now is the crucial time to plan ahead to protect your family’s wealth for generations.
Federal Estate Tax Exemption
The federal estate and gift tax exemption is currently $12.92 million per individual ($25.84 million per couple), up from $12.06 million in 2022. Unless Congress acts, these limits will revert on December 31, 2025, to a $5 million cap (adjusted for inflation), projected around $6.2 million—almost half of the current exemption.
Gift Tax Exclusion
The gift tax exclusion is $17,000 per individual or $34,000 per couple, and gifts under these amounts won’t count against your lifetime exemption. High-net-worth estates benefit from gifting strategies to reduce estate value before the exemption decreases in 2026.
Generation-Skipping Transfer (GST) Tax
The GST tax applies to wealth transfers exceeding exemption limits to grandchildren or more remote descendants who are over 37.5 years younger than the donor. This tax prevents non-taxable wealth skipping generations, applying a flat 40% tax rate over limits.
IRAs and the SECURE Act 2.0
The SECURE Act 2.0 introduces major changes to inheritable IRA rules, including:
- Qualified Charitable Distributions
- Delayed Required Minimum Distributions (RMDs)
- Repeal of Roth Account Pre-Death RMDs
- Conversions from 529 Plans to Roth IRAs
- Changes to the 10-year withdrawal rule for inherited IRAs
Corporate Transparency Regulations
Effective January 1, 2024, the Corporate Transparency Act mandates business entities to disclose beneficial owners to FinCEN by January 1, 2025. This affects LLCs, corporations, and limited partnerships often used by high-net-worth families for tax purposes. Beneficial owners include individuals who:
- Own or control at least 25% of the company
- Exercise substantial control over the company
- Are trustees or beneficiaries with authority over trusts holding company interests
How Trusts Help Protect Your Wealth
Legislation evolves constantly, creating both opportunities and challenges for tax planning. Trusts remain a powerful tool to safeguard high-net-worth estates. They hold assets for beneficiaries, offer tax benefits, and provide legal protections.
Trusts fall into two main categories:
- Revocable Trusts: Typically used to avoid probate and allow changes during the grantor’s lifetime.
- Irrevocable Trusts: Cannot be changed without court approval; often used for asset protection and tax planning.
Key Trust Types
| Trust Type | Purpose & Benefits |
|---|---|
| Intentionally Defective Grantor Trust (IDGT) | Isolates assets for favourable income or estate tax treatment by shifting future appreciation out of the gross estate. |
| Charitable Lead Trust | Provides income to charity for a set time before assets pass to beneficiaries, balancing philanthropy and family legacy. |
| Charitable Remainder Trust | Offers income to beneficiaries first, with remainder passing to charity, supporting both heirs and charitable goals. |
| Crummey Trust | Enables annual gift tax exemption use by giving beneficiaries a limited withdrawal period; often funds life insurance policies to keep proceeds out of the estate. |
| Generation-Skipping Trust | Transfers assets to grandchildren or younger generations, deferring estate taxes across multiple generations. |
| Grantor Retained Annuity Trust (GRAT) | Allows the grantor to retain income for a period while transferring assets to heirs, potentially reducing estate taxes. |
| Asset Protection Trust (APT) | Shields assets from creditors and lawsuits, benefiting grantors during their lifetime. |
Is Your Estate Plan Ready for Changing Laws?
Work with an estate planning attorney specializing in high-net-worth estates to evaluate your plan’s resilience to tax law changes. They collaborate with tax advisors, financial planners, and accountants to craft a comprehensive plan that protects your family’s wealth and legacy.
We hope you found this article helpful. If you’d like to discuss your particular situation, please contact our Sherwood or Searcy office at 501-834-2070 to schedule a consultation. We look forward to the opportunity to work with you.