I have small children. As I write this article, Halloween is still a month away, but they're already bouncing off the walls with anticipation—and a little fear. In many ways, estate planning today feels like wandering through a haunted neighborhood—some houses doling out generous tax giveaways, others that make you cringe with lost files.
As you and your clients make the rounds of your estate planning neighborhood, let's tour the five must-visit homes on this thrilling estate planning journey and discuss how to turn potential tax fears into savings. sweet.
Stop 1: Jerry Powell's House: Dealing with rate cuts, gift scams
- Treatment: Fed rate cuts
The first house we're stopping at belongs to Jerry Powell, the chairman of the Federal Reserve. The Fed's recent rate cuts are one of the biggest wealth planning “deals” of 2024, providing a great opportunity to act strategically. With lower interest rates, vehicles like grantor-held annuity funds allow families to “lock in” asset values and pass future appreciation to their heirs with minimal tax impact. By locking in these low fees, customers can ensure better financial outcomes for their heirs, much like grabbing a super-sized candy bar early at night. - Trick: The Gift Dilemma
But watch out for the trick! While lower rates make the gift look easy here at the end of 2024, lower rates bring higher asset values. This means the window for closing at lower values before they are subject to gift and estate tax closing fast. It's like grabbing a candy that melts too quickly—if your clients aren't careful, they could be left with a difficult tax mess later.
Stop 2: House of the IRS: The Trick to Forget Your 2023 Gift Return
- Cheat: Oops, we forgot to return the gift
The next house on our tour is the Internal Revenue Service—always ready to scam unsuspecting taxpayers. A common estate planning pitfall is forgetting to file a gift tax return for a gift made in 2023. This may seem like a small mistake, but it can turn into a nightmare if not corrected. The IRS has been particularly focused on the accuracy of gift reporting in recent years, and failure to file can result in penalties, increased scrutiny or even audits. It's the equivalent of showing up to Halloween without a costume – the consequences are far more awkward and uncomfortable than you might expect.
For clients who made gifts in 2023 and have not submitted their returns, it is essential to have this oversight fixed before 15 October. Failure to do so may cause the IRS to reassess the gift, which could lead to increased taxes, penalties or even valuation disputes. It's no wonder this house gets egged every year on Evil Night. - Treat: Proper assessment saves the day
But here's the treat – a proper assessment can save the day. The IRS requires that gifts be properly valued and reported at fair market value. A quality rating ensures that customers accurately report the value of their gift. Doing so reduces the risk of IRS challenges down the road because a client forgot to file or failed to properly assess. When clients understand the importance of proper appraisals, they can avoid unpleasant surprises and keep their estate plans on track. It's like coming prepared to a haunted house—you're ready to handle whatever tricks might be lurking behind the door.
Stop 3: The Year-End Planning Labyrinth: Don't Miss Out!
- The trick: Waiting until it's too late
As you and your clients navigate the confusing maze of year-end estate planning, remember that waiting too long to make decisions can be punishing. December is fast approaching. Letting clients procrastinate about their planning can lead to fascinating consequences down the road. As the old saying goes: “Failure to plan is planning to fail.” With the distraction of the holidays and year-end obligations piling up, customers often delay making smart gifts or charitable contributions. By the time they get there, they're stuck with last-minute transactions, risking mistakes or missing out on tax-saving opportunities. - Treat: Make smart gift decisions now
The trick here is smart gift planning before the end of the year. Focus on strategies like encouraging clients to use their annual gift exemptions — $18,000 per recipient in 2024 — to transfer assets to family members in a tax-efficient way. Making larger gifts that use a portion of the exemption over their lifetime can be an excellent strategy for clients looking to reduce estate tax exposure. Charitable giving is another powerful tool, especially for reducing taxable income before the end of the year. The key is to act early and carefully, making sure all the pieces are in place before time runs out. Helping clients navigate this maze now ensures their estate plans are in good shape and ready for the new year.
Stop 4: Election Night House: Scam Proposals
Trick or Treat: Candidates' proposals
At this stop, we find the most unpredictable house on the block – the upcoming presidential election. As we approach November 2024, the estate planning landscape could change dramatically based on who wins. A candidate may offer a treatment in the form of higher estate tax exemptions; the other may bring a scam with increased taxes and new regulations. One of the most debated proposals is the wealth tax, which has gained traction since the 2020 campaign. In fact, Vice President Kamala Harris has aligned herself with President Joe Biden's push for a wealth tax that would apply a on unrealized capital gains. Like mine Moore v. United States highlighted articlehere is a constitutional path to reality. The implications of this are significant for high net worth individuals. An estate tax could fundamentally change estate planning strategies, forcing clients to rethink how they hold and transfer wealth. Whether it's trick or treating, be as prepared as possible for whatever policy changes come out of the dark.
Stop 5: TCJA House at 115-97: Full Size Candy Bars
- Treatment: Exemption Expiring Soon
In house no. 115-97 on Private Lane (our favorite neighbor), they hand out full size candy. The Tax Cuts and Jobs Act lifted today's unprecedented estate tax exemption. Under the TCJA, the federal estate tax exemption is currently at an all-time high — $13.61 million per individual in 2024. But like any good treat, these full-sized bars are running out fast. In just over a year, at the end of 2025, this exemption will shrink dramatically, falling to roughly half its current level unless new legislation is passed.
For customers who have been on the fence about making large gifts, now is the time to act. By using the current exemption, they can pass significant assets to heirs without incurring estate taxes. Missing this window is like arriving late to a house with no sweets – you'll leave empty-handed and regret your time. - Trick: They're running out!
But don't wait too long—TCJA's generous exemption will drop dramatically at the end of 2025, like a neighbor running out of candy. Encourage customers to make meaningful gifts now while full-size bars are still available. By transferring the wealth today, they can avoid the tax consequences of a much lower exemption in the future.
Collect your candies before they disappear
Like a successful walk, estate planning requires good timing, a realistic path, and smart choices. Deals available now—like rate reductions, sign-up opportunities, and giveaway strategies—may not last forever. Don't leave clients waiting for election results or the calendar to turn to 2025 to start estate planning. If they do, they may be left with an empty bag or a mouth full of cavities.
Anthony Venette, CPA/ABV is a Senior Manager, Valuation and Business Advisory, with DeJoy & Co., a BDO Alliance firm based in Rochester, New York. He provides business valuation and advisory services to DeJoy's corporate and individual clients.