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Revisiting Estate Planning in Light of Potential Tax Law Changes

Brian D. Kitchen, CPA, MT Director, Tax Strategies

A business owner’s most significant asset is usually their business interest. Ensuring that this asset is considered in an overall estate plan is paramount for successful long-term planning. With estate tax law changes on the horizon, it is important for business owners to understand the importance of looking at their assets holistically and preparing for the future.

Below we will discuss current law, future changes, and key considerations for your estate planning strategy.

Current Estate Tax Law

The amount which can pass free of federal estate, gift, and generation-skipping taxes has increased for 2024 to $13.61 million per person. In 2024, unmarried individuals may exempt $13.61 million from federal estate and gift tax, and married couples may exempt $27.22 million. 

Future Estate Tax Law

At the end of 2025, the federal estate/gift tax exemption will be reduced to approximately $7 million per person, pending final inflation adjustments, due to a “sunset” in tax law.

Key Estate Planning Considerations

The maximum federal estate tax rate is 40 percent while the state inheritance/estate tax rate generally ranges from 0 to 16 percent. Trusts can be a useful estate planning strategy and can allow for current access to your assets while also ensuring your beneficiaries benefit from the use of the assets in the long-term.

Valuation discounts of a business owner’s interest can also be part of a successful estate planning strategy. Valuation discounts are generally applied for lack of marketability, and in some cases, minority interests. These discounts can reduce the value of the gift by 20 to 45 percent. However, prior gifts must be taken into consideration when evaluating future gifting options.

Other assets may also be used as part of your overall estate planning strategy. Typical assets used in planning include real estate, traditional equity investments, and family limited partnerships.

Looking Ahead

The current estate and gift lifetime exemption needs to be taken into consideration by all business owners regardless of prior planning before the end of 2025. The ability to preserve the long-term value of the asset and shelter that value from future estate tax is vital to a successful planning strategy. If you have any questions or would like assistance in assessing your estate planning strategy, please contact a member of Kreischer Miller’s Tax Strategies team.

Contact the Author

Brian D. Kitchen, CPA, MT

Brian D. Kitchen, CPA, MT

Director, Tax Strategies

Business Tax Specialist, Individual Tax Specialist

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