Preparing for the Future: Estate Planning from a Tax Perspective

July 2, 2024

Welcome to the Herbein Conversation podcast, where we explore the issues that matter most to your business.

In this episode, we explore the world of estates and trusts with Stacy Weller, a Partner in Herbein's tax practice.

Join us for an in-depth discussion of the changes in tax laws, as well as ways we can help turn those changes into your opportunities. Start estate planning now to ensure you are utilizing your wealth to its best potential - with the latest Herbein Conversation Podcast.


Amy B. Klatt: Hello and welcome to the Herbein conversation Herbein and Company, podcast that dives deep into trending topics that you need to know Herbein's, an award winning CPA advisory firm servicing clients throughout the United States.

So today I'm here with Stacy Weller, partner and a leader of our tax practice who specializes in estates and trust, tax planning and compliance.
Thanks so much for joining us today, Stacy.

Stacy A. Weller: Thanks, Amy. I'm so excited to be here with you today.

Amy B. Klatt: So I know that we were just discussing the importance of really having a plan, an estate plan, in place and there's certainly a lot going on that can impact planning right now.

And I know we'll we'll talk about that throughout this episode, but to get us started, do you want to talk a little bit about the importance of what you do when you're working with your clients and having a plan in place?

Stacy A. Weller: So I think a really interesting fact would be that over the next 40 years, it's expected that more than $40 trillion will change hands in the United States in a massive generational transfer of wealth.

So as part of that, it's certainly very important to have a plan in place for several reasons.
It could be tax savings, asset protection, wealth planning, philanthropic goals, and there's many other reasons, Amy.

Amy B. Klatt: So more than 40 trillion changing hands is is a pretty impressive number.
We know that there's a lot of opportunity and changes coming up related to estates and planning, specifically some big tax law changes.

Do you want to talk a little bit about the latest trends in estate planning that you're seeing and maybe some some of the trends that individuals should be aware of for the upcoming year?

Stacy A. Weller: So, yes, Amy, there's absolutely a lot that we we are monitoring right now. We have our eyes set on the sunset of the tax cuts and JOBS Act, which is slated to sunset as of 1231. 2025 so we're monitoring potential changes in the estate and gift tax laws related to that sunset.

We are trying to make sure that our wealthy clients are utilizing the current exemptions.
The higher estate exemptions that are in place before any potential decreases would come into play with that sunset. We're seeing a lot of trusts being set up, we're seeing gifting into those trusts so that you know by by clients gifting assets out of their estate, they are able to protect those assets. And then also potentially avoid estate taxes down the road.

We're also seeing Dynasty trust used to preserve wealth across multiple generations so that you might see grandparents setting things up for grandchildren in the future.
Or even their children. Umm, we are also seeing planning revolving around digital assets.
So digital assets have become very popular. So we're talking about cryptocurrencies, the NFT's. So the big thing there is to make sure that you've got proper documentation to be able to access these accounts.

So all of this stuff is online and you know, unfortunately, we've seen some horror stories where somebody passes away and nobody can access the accounts anymore. So you wanna make sure as part of your planning, if you've got digital assets that you're, you're making sure that somebody has access to those accounts if you were to pass away, there's planning revolving around healthcare and end of life planning you're looking at in this area, you're looking at your healthcare proxies, living wills and power of attorney documents, making sure those are up to date, making sure that all of your wishes are addressed.

And then lastly, I would say charitable, so everybody's got different charitable intentions.
Uh, there is a lot of planning that could be done using trusts or donor advised funds for charitable goals and achievement of those charitable goals.
So you know, if I've got clients looking to accomplish certain philanthropic goals, you know, we can weave in maybe a charitable remainder trust to accomplish those goals.

Amy B. Klatt: Wow, thanks for that. That overview it, there's certainly a lot going on that could really impact a lot of things related to a state planning for our clients.
And one thing you already noted and we jumped right into with the tax cuts and JOBS Act expiring coming up. So how will that expiration of the actual tax cuts and JOBS Act?
Provisions in 2025 really affect those estates and gift tax planning.

Stacy A. Weller: Sure. So right now, under the the current legislation that we're the environment that we're operating in, there is a $13.61 million lifetime exemption in place per person. So if you're thinking about a married couple, they're looking at $27.22 million that they could pass from themselves to the next generation without incurring any estate tax.

So that with the sunset slated to come into place as of the beginning of 2026, that number is going to go back to the old rates that were in place and it will be a $5 million indexed for inflation amount. So nobody knows what the number will be for sure, but it is expected to be somewhere between six and a half million to 7,000,000 per person. So if you're thinking about what I just said, it's at 13.6 million right now.And in two years, year and a half, it's going to go down to maybe six and a half, $7 million.

So it's a big number that that people will lose that exemption if they don't take advantage of it now. So the big thing, you know, if you have, if you have the wealth, the big thing that people are trying to do is setting up irrevocable trusts and gifting money from their current estate into those irrevocable trusts. Now to lock in that higher because ampion amount. So somebody could gift up to $13.6 million this year and it'll get increased next year for inflation.

But somebody could give that entire amount and then when the when the tax law sun sets, there is no clawback of that gift. So what that means is you give 13 million now the loss on sets and it's gonna go to 6 1/2 to 7,000,000 with inflation, they can't come back and say ohh we have to take 6 or $7 million of that gift back. It's locked in place, so for those that have the wealth, it absolutely makes sense. If they can afford to, to take advantage of maximizing the gifting in this scenario, umm, you know there's there's also other gifting. You know it's lesser amounts, but there is annual gifting that can be done per person.

So you know, I have a lot of clients that take advantage of just doing annual gifts between a husband and a wife. It's $18,000 per year per person, so if you're gifting to a child and their spouse and maybe grandchildren, you know you can slowly but surely get a lot of wealth out of your estate and into other people's hands. So you can take advantage of the annual gifting.

There's plenty of trusts and strategies with trust. If you know if you're looking to looking to go that route, and would would certainly recommend it. There's also the ability to take advantage of the generation skipping transfers, so the generation skipping tax is that same exemption amount currently, and it will also go back to a six and a half $7 million number. So the generation skipping is as it might sound, this would be where it's a grandparent, possibly setting up a trust for a grandchild. So you're skipping over that child level and and trying to get wealth to another Another generation. So that's also something that, you know people are are doing and setting up GST trusts to benefit children or grandchildren and future generations.

As you are navigating this potential law change and possibly your somebody who's already set up in a state plan and you know I just want to reiterate for those folks, it is very important to make sure you are reviewing and adjusting your plans, something to be mindful of is how much that annual exclusion has increased each year for, for, for your exemption due to inflation.

So for example sake from the tax year 2023 to 2024, it indexed $690,000 for inflation.
So if if you were an individual that in 2023 you fully utilized your $13 million or I'm sorry, you're $12 million and change exemption and then you ultimately you know sat back and said I did everything I need to do to be ready for the tax, the tax cuts and JOBS Act to sunset. Well, the reality is you haven't, because now you still have $690,000 available that you could theoretically gift again into a trust that you already set up or you know just do outright gifting.

However, you would want to accomplish it, but you do need to make sure that you're you're continually looking at your plan and making sure that it's it's up to date.
There's other things that change, such as state estate taxes. You know that stuff is always changing. So just be mindful that you're you're constantly updating the plan. It's it's really not one of those things that you just set it and forget it. That makes sense.

Amy B. Klatt: Now, thank you. That makes total sense, and I think it's not one of those.
Set it and forget it. Things is is probably good for everyone to remember. So basically to summarize, it's just really key to continual continually review your plan me with your tax advisor and just make sure that that you're up to date on the latest trends and things that might be changing or impacting your plan. So along the same lines, then how might the current economic climate, with its specific challenges and opportunities that I know that you're, you're up to date on? How much? How might they impact estate and trust planning?

Stacy A. Weller: Sure. It's a good question, Amy. So there's definitely still economic uncertainty. I mean, we're coming into an election year or we're in an election year and you know that that brings uncertainty for a lot of different reasons. So I think he there is making sure that you're assets are diversified to protect against market volatility. If there is any, and then revisiting and adjusting our asset allocation strategies within your trust and and even outside of your trusts, you know inflation has been a concern.

So you know, potentially using inflation protected assets, whether it be indexed funds or something along those lines. But there are options out there to make sure that you're keeping up with inflation. The housing market, you know, who knows what's what's going to continue to happen there. You know property values are still very high, so there's some strategies that that works really well for gifting. But then the other the flip side of that is also being mindful that the current tax law and even the the sunset they both provide at this point for a date of death, fair market value, step up of your assets. So if you if you're somebody that has real estate with a large built-in unrealized gain, it might be best to keep that in your state and and die with it in your estate and give your hairs a stepped up basis.

So that's something to to think about and plan around. And then with with private business interests, you need to make sure that you've got proper valuations in place and succession planning. You know, they're looking at buy sell agreements is very critical.
You know, some, some people I've worked with, it's their wishes that upon the moment they pass away that steps are supposed to be initiated, that that business would be immediately sold. It's other people's wishes that it'll go to family. You know, there's. You just need to make sure that you've got all of your agreements up to date and people know what your wishes are upon your passing.

Amy B. Klatt: Yeah. Thank you. That's that's a really great. So and we have another question or two, but really along the same lines of the the trends and and things that are ever changing with this area Secure Act 2.0, I'm sure that you've been getting a lot of questions about that and I know that we've had some as well. So in what ways does the Secure Act 2.0 alter retirement and estate planning and and do you have recommended steps that client should consider to think about regarding that?

Stacy A. Weller: Yeah, sure. I mean the Secure Act 2.0 was yet another twist in retirement planning. As I as I view it and you know the big the big change in there is that the updates to required minimum distribution ages. So that would be the the timeline of when you are required to take money out of a retirement account. So your IRA's, your 401K's, et cetera.
So you just need to make sure that you know you know you're required date, that your you know feel like I'm saying required a lot here. You're required to take money out of those accounts so you don't get penalized.

There are specific rules and the IRS will penalize you if you're not meeting those requirements. So just be mindful that those have changed and work with your advisors to be sure you're meeting those you wanna make sure that. I mean, this is always good advice, but you wanna really take a a few minutes and look at your beneficiary designations on those types of accounts. Your IRA's, 401K's, etcetera. They can all be beneficiary designated, so you do want to be mindful that those are the right people.
You know if if if you've updated all of your other documents, your will you've set up trusts, etcetera.

It's important to make sure that all of the beneficiary designations tie into the rest of the plan. So you have to be intentional and make those adjustments. Umm Roth conversions. So Roth IRA conversions are really powerful tool to basically move taxable IRA money into a non taxable IRA and this has been around for a little while now. The big thing here and when I'm working with clients, I really try to analyze what type of tax rates my clients would be exposed to now versus in retirement, so that we are making a tax conscious decision when determining if a Roth IRA conversion works there.

There's some estate components with that as well, you know and and some overall goals of what somebody's trying to accomplish, but I certainly don't advocate for paying more tax now if we know that's the absolute scenario would be in. So I do try to weave in tax planning as part of a Roth IRA conversion discussion and analysis, and then I think the last thing in there that is is a really powerful tool that I don't know how many people know it's available, but the use of qualified charitable distributions. So this is a super tax efficient way to meet those required minimum distribution requirements that we talked about in the first part of this section and also support your charitable causes.

So again, if you're, if you're interested in something like this, it's a way to get up to $100,000 to charity and then essentially you don't pay tax on that income coming out of the the IRA or 401K wherever you're taking it from. So certainly reach out and talk to your tax advisor about that planning strategy if it interests you at all. A super tax efficient way to to make charitable contributions.

Amy B. Klatt: Thanks so much, Stacy. So to really summarize, the goal of today's podcast episode was really to just provide a high level overview of things impacting the States and trust tax planning area. There could be an episode, probably on each of the things that we covered or every individual question we talked about today. So maybe stay tuned, but as we wrap up today, knowing how much we we covered, is there anything key that you'd like to leave our listeners with?

Stacy A. Weller: So I think there is actually Amy, I'd I'd like to just reiterate that proper planning and proper estate planning should really include all of your professional advisors. We often work together with the strong attorney, a strong financial planner and you know, client and myself at the table. That's how we really can do a fully holistic plan and achieve, you know, achieve your goals.

Umm, you know and and then I think lastly, I would be very mindful that if you are somebody that is thinking Gee, I I really need to to to start planning and possibly create trusts. You know, I I am fitting this criteria of this high wealth and and I don't wanna get caught without utilizing some of the state exemption in light of the sunset of the tax law.
You should be engaging with your advisors now.
Attorneys will end up being very, very busy in 2025. Drafting wills and trust agreements in light of the tax law sunset, so my best advice would be to reach out today and honestly, just don't delay on it.

Amy B. Klatt: All right. Well, with that, thanks so much for joining us today. Stacy.

Stacy A. Weller: Thank you, Amy.

Amy B. Klatt: And thanks to everyone for listening in. We hope to be your go-to source for thought leadership as we continue to explore trending topics with experts from various industries and service lines. To learn more, you can visit us at and until next time this is Amy Klatt signing off.



This information is not legal advice and should not be considered the final word on these topics. Before taking any action, you should review this material with internal and/or external advisors.