What We Can Reasonably Expect
Although official 2024 election results will not be available for a few weeks, based on projections, in 2025 we will have a second Trump administration paired with narrow Republican majorities in the House and Senate. From a federal gift, estate, and generation-skipping transfer tax perspective, what can we expect to happen?
During then-President Trump’s first term, he drove passage of the Tax Cuts and Jobs Act (“2017 Act”), utilizing similarly narrow Republican majorities in the House and Senate. It remains the law today. As you have heard repeatedly over the last few years from us and likely other sources, the 2017 Act’s provisions largely are due to expire at the end of 2025 and revert to pre-2017 Act law in 2026 (notably including the current large federal gift and estate tax exemption, which is set to be cut roughly in half). On the campaign trail, now-President-Elect Trump pledged to extend the taxpayer-friendly provisions of the 2017 Act for a period of years, if not permanently.
Permanent extension is unlikely because of probable opposition by Democratic Senators in a filibuster, which could only be overcome if enough of them were to join the simple majority of Republican Senators in a 60-vote supermajority vote. Nonetheless, the federal budget reconciliation law used in 2017 to enact the 2017 Act’s temporary provisions with simple House and Senate majorities again would allow the new Congress to extend the 2017 Act for up to ten years.
Accordingly, early next year the Republicans likely will seek to renew the 2017 Act. Doing so would avoid a 2025 year-end scramble by taxpayers and their advisors attempting to maximize the estate planning advantages afforded by the 2017 Act’s otherwise expiring provisions (most notably, the large tax exemption).
We anticipate that an extension of the 2017 Act would include continuation of the large federal gift and estate tax exemption (for 2024, $13.61 million per taxpayer), which annually is adjusted for inflation. We also expect the current 40% tax rate to remain in place for gifts or estates in excess of the exemption amount. Additionally, it is extremely unlikely that prior Democratic proposals to curtail or eliminate taxpayers’ use of various tax minimization estate planning techniques will be advanced by the Republican majorities. Similarly, the Trump administration is unlikely to propose such curtailment or elimination through regulations or administrative pronouncements. (Notably, in the first Trump administration, various existing and proposed regulations were repealed or cancelled with few new regulations added.)
Nonetheless, at least three types of caution should be exercised when deciding whether and when to implement tax minimization estate planning techniques: one political; another economic; and the last timing.
Political. While in 2025 the Republicans appear poised to take control of the executive and legislative branches of the federal government, during the mid-term elections only two years away in 2026 more Republican Senate seats will be up for election compared to this year when the opposite was the case. (As always, all House of Representative seats will be up for election.) That said, with a tax-averse new Republican President, whatever 2017 Act extension may be adopted in 2025 is likely to be the law until at least after the 2028 election.
Economic. Assuming that taxpayers’ assets appreciate in value, the federal gift and estate tax exposure will increase regardless of the size of the federal gift and estate tax exemption. Engaging in tax minimization planning earlier while values are lower may enable future growth to escape taxation, allowing for transfer of greater economic benefits to children, grandchildren, and other beneficiaries.
Timing. Taxpayers are, of course, mortal and at risk of passing away at any time and tax laws change from time to time. Such law changes are not always for the better. Accordingly, the sooner a taxpayer implements tax minimization techniques, the ultimate tax result generally will be better than postponing or not implementing those techniques at all.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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