February 2, 2024

Hargrove Firm’s team of national leaders in estate, tax and business planning legal services, is here to help you navigate the evolving economic landscape of 2024 and beyond. Several key federal tax updates make it an ideal time to review your current estate plan with a Hargrove Firm attorney and explore new wealth preservation tactics. Ramsey Watson, a seasoned partner focused on providing strategic counsel to high-net-worth clients at Hargrove Firm, shares her estate planning insights and perspectives.

UPDATE 1: Revised Exemption Thresholds

The estate tax/gift exemption has been raised to $13.61 million, up from $12.9 million in 2023.

STRATEGY 1: Capitalize on Current Exemptions

Watson recommends taking advantage of current exemptions before they are significantly lowered at the end of 2025, as anticipated. “This might be one of the last hikes before 2025, after which we expect a reduction in the estate tax exemption by half,” Watson said. “Clients can consider using a combination of gifting and sales now to minimize estate taxes at death, while still allowing for flexibility in retaining control, along with beneficial interest in their assets or some portion thereof.”

UPDATE 2: Gift Exclusion Amount Increase

The annual gift exclusion is set to $18,000 per year.

STRATEGY 2: Maximizing Gift Strategies

Clients can take advantage of this new figure by increasing life/inter vivos gifting without incurring significant federal gift taxes. Clients can also reevaluate charitable gifting strategies and leverage family business valuation discounting for family business interests to multiply the benefit of the annual gift exclusion.

UPDATE 3: The Corporate Transparency Act (CTA)

The Corporate Transparency Act introduces new filing requirements for businesses/business interest owners. The CTA requires specific businesses to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) to combat financial crimes.

STRATEGY 3: Navigating the CTA

Understanding how the CTA impacts one’s business structures is crucial. Business owners can have a direct line to Hargrove Firm’s team that can assist with these mandatory updates and filings ensuring their business and personal planning remains compliant.

UPDATE 4: Inflation Outlook and Installment Sale Planning

In light of the current economic climate, it’s important to consider the impact of inflation on estate planning. The present administration, with a pivotal election scheduled for November, has set a goal to reduce inflation to 2% by the fourth quarter of 2024. Achieving this target would likely lead to a decrease in interest rates, presenting a strategic advantage for installment sale planning.

STRATEGY 4: Capitalize on Economic Landscape Changes

The Applicable Federal Rate (AFR) currently hovers around 4.5%, significantly higher than the approximately 2% rate observed two years ago. A reduction in interest rates enhances the appeal of installment sales as a tool for transferring assets, allowing clients to lock in lower interest rates for the term of the sale, which in turn, helps minimize the cost of transferring wealth to beneficiaries. This scenario underscores the need for proactive planning to capitalize on potential changes in the economic landscape.

The inflation-adjusted federal tax exemptions and exclusions discussed above present unique, timely estate planning opportunities for high-net-worth individuals in 2024, particularly when it comes to shielding those assets from higher future estate taxes. The combination of new regulatory legislation and the high gift and estate tax exemptions, along with the uncertainty of where those same exemptions will be in a couple of years, imposes a sense of urgency.

“The current political and tax environment creates planning opportunities that clients can incorporate in their portfolios that are incredibly unique,” Watson said.

To learn more about the impact of these updates, email us at info@hargrovefirm.com.