In this guest post, Harness Tax Advisory Council member, Griffin Bridgers, J.D., LL.M. covers some of the top estate planning trends that tax advisors should be tracking during the second half of 2024.
Now that the mid-point of 2024 has passed, we are faced with an environment where little has changed with respect to the wait-and-see posture of estate and wealth transfer planning. However, awareness is key, both for clients and advisors.
In this article, we discuss six topics and trends that tax professionals should be aware of to win the information battle as a trusted resource for clients.
1. The Corporate Transparency Act
As of January 1, 2024, the requirements of the Corporate Transparency Act (CTA) were implemented. Generally, reporting companies that existed prior to January 1, 2024 have until the end of 2024 to file an initial report regarding beneficial owners, except for entities that are exempt. Any reporting companies created during 2024 have 90 days to file this report, and for reporting companies created in 2025 or after this filing deadline is reduced to 30 days.
While none of the actual CTA requirements have changed this year, a number of lawsuits have challenged, or seek to challenge, the constitutionality or enforcement of the CTA. In addition, the New Jersey Supreme Court determined that the filing of a beneficial ownership report by non-attorneys (particularly CPAs) could constitute the unauthorized practice of law, especially for complex filings. Many advisors have taken a wait-and-see approach in the wake of these types of challenges, or have instead advised clients that they alone are responsible for their own filing obligations.
2. Sunset of the Tax Cuts and Jobs Act
While a handful of the changes to tax law under the Tax Cuts and Jobs Act of 2017 (the TCJA) have been made permanent (such as the C corporation tax rate and the changes to the income tax treatment of alimony), many of the TCJA changes will sunset as of December 31, 2025. Barring congressional changes between now and then—a tall order depending on the outcome of this fall’s election—many income and estate tax provisions will revert back to pre-TCJA law after 2025.
On the estate planning front, chief among these potential changes is the sunset of the gift and estate tax basic exclusion amount for U.S. citizens and residents. If the sunset occurs, this inflation-adjusted amount, which is currently $13,610,000 as of July 2024, could be reduced by one-half (after inflation adjustments for 2025 and 2026) starting on January 1, 2026. Gifting before the sunset can help use this tax benefit before it is lost, but the benefits of such gifting do not kick in until an individual’s cumulative lifetime gifts exceed the one-half of the exclusion that could sunset. Proposed Treasury Regulations would, if enacted, further limit the types of gifts that could be made without a clawback of the basic exclusion amount such as donative promises and grantor-retained income trusts.
3. The SECURE Act 1.0 and 2.0
The initial version of the SECURE Act is now almost four years old, but final Treasury Regulations on its changes were not published until July 19, 2024. The new Regulations generally clarify (1) the trust look-through rules that apply when a trust is designated as a beneficiary of qualified plans (401(k), 403(b), and 457 plans generally), or individual retirement accounts, and (2) the required minimum distribution (RMD) requirements on designated beneficiaries subject to the new 10-year payout rule. Annual IRS notices, most recently Notice 2024-35, have suspended RMDs under the 10-year rule (but not other required distributions) on a calendar-year basis, but it appears these requirements will kick in starting in 2025.
The SECURE Act 2.0 contained a number of changes relevant to estate planning. An extension of the required beginning date may reduce the effectiveness of RMD planning, especially under the “ghost” life expectancy rule. While RMD requirements for Roth IRAs were eliminated during an owner’s life, these requirements still apply to an inherited Roth IRA. Further, limited rollover distributions of up to $35,000 (of both basis and earnings) from 529 plan to a Roth IRA are permitted, but only for 529 plans that have been in place for 15 years. Post-sunset of the TCJA, estate tax on IRAs and qualified plans could again become a concern, but the income tax deduction for estate tax on income in respect of a decedent under Code Section 691(c) continues to help reduce double-tax on such distributions.
4. No Step-Up in Basis for Grantor Trust Assets
Grantor trusts serve as an effective tool in estate planning. Some of their primary benefits include depletion of the gross estate at a lower tax rate (when comparing income tax rates to the 40% top gift tax rate), and the ability to sell or exchange assets between the trust and a grantor (or beneficiary as deemed income tax owner) without gain recognition in order to freeze the estate tax value of the assets sold to the trust.
In addition to freezing estate tax values, this ability to exchange assets between grantor and trust is a valuable income tax planning tool as it allows a grantor to remove low-basis assets from the trust in exchange for an equivalent value of high-basis assets contributed by the grantor. This exchange takes advantage of the step-up in basis for appreciated assets that occurs for assets actually owned by a grantor at death. Previously, some practitioners took this a step further and believed that the mere transfer of deemed income tax ownership from the grantor to the trust at the grantor’s death was enough to create this step-up in basis for assets already owned by the trust. However, in Rev. Rul. 2023-2, the IRS clarified its position this step-up in basis required an actual change of title from the grantor to the trust at the grantor’s death, and could not be obtained for grantor trust assets that were simply deemed to be owned by the grantor under the grantor trust rules immediately prior to death.
5. Declining Estate Plan Participation
A recent article reflects an overall decrease in estate planning participation by older generations. This has come about despite an increase in document generation services, and an increase in nonprobate transfers that allow certain assets (especially financial assets) to be transferred directly to individuals at death through a beneficiary designation, or a pay-on-death or transfer-on-death (POD or TOD) designation. Some of the uncertainty discussed above may create hesitation to engage in planning, especially for business owners or high-net worth individuals and families.
The delivery of estate planning, especially estate planning strategy, has continued to evolve in the face of such uncertainty and hesitancy. Many non-attorney practices and firms, especially wealth advisors and CPA firms, have continued to beef up their ranks with talent from the legal world. Many advisors have started to consider the next generation of clients who stand to inherit assets in the great wealth transfer from Baby Boomers to Generations X, Y, Z, and Alpha. And, in this vein, many of the successors who would otherwise take over legal and accounting practices have instead started to explore alternative careers in wealth management and/or trust administration. The war for talent will continue to constrain many professional practices that assist with wealth transfer planning.
6. Green Book Proposals
While many popular estate planning techniques have been under scrutiny for the past two decades, there has been no significant legislation to curtail many of the tried-and-true strategies used by estate planners such as short-term GRATs, sales to grantor trusts, and use of generation-skipping transfer tax exemptions to create dynasty trusts. Nonetheless, the annual Revenue Proposals published by the U.S. Treasury Department (the Green Book proposals) contain a list of “usual suspects” on the chopping block. Knowing and using these strategies before they are lost can be important for many advisors or clients.
The FY 2025 Green Book Revenue Proposals, if later included in a congressional bill, could curtail strategies such as Crummey withdrawal rights and formula gift clauses. Defined value gifts could not be based on the gift tax value finally determined by the IRS under the latest Green Book proposals, allowing the IRS to determine a gift tax deficiency if the value is understated. Crummey powers may no longer be needed, based on a proposal to eliminate the present interest requirement for annual exclusion gifts, but with a trade-off of a new per-donor annual cap of $50,000 for such gifts. In addition, a new reporting requirement could require trusts to annually disclose assets and estimated values if the total trust assets exceed $300,000 or gross income exceeds $10,000 (each adjusted for inflation).
In 2024 and Beyond, Be Ready for Change
While death and taxes remain certain, a third certainty—change—continues to creep in to the estate planning landscape each election cycle. Keeping ahead of these changes, while managing client expectations, can seem like a tall order. Luckily, many of the foundational approaches to estate and tax planning continue to be viable and important even in the face of uncertainty.
Harness will continue to be in your corner with updates and tax practice management tips to help you tackle uncertainty head-on. See how Harness can power your tax firm.
About the Author:
Griffin Bridgers, J.D., LL.M. is a member of the Harness Tax Advisory Council. Griffin educates wealth transfer professionals through his newsletter, State of Estates, which can be found at https://griffinbridgers.substack.com. Griffin also offers independent, outsourced subject-matter expertise in tax and estate planning to CPAs, financial advisors, and family offices.
Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness Wealth”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances. This article is a product of Harness Tax LLC.
