Navigating Gift and Estate Tax Planning Amid Post-Election Uncertainty
The recent election results have created quite the buzz surrounding the future of gift and estate tax exclusions, leaving many high-net-worth individuals and their advisors scrambling to anticipate potential changes. As the political landscape shifts, the window of opportunity to take advantage of historically favorable exclusions is narrowing. As the current exclusion amount for individuals is set to potentially drop after 2025, estate planning attorneys and CPAs must act quickly to advise clients on strategies to maximize benefits.
Uncertainty Drives Urgency
Political transitions have always influenced tax policies, particularly those surrounding gift and estate tax planning. The lifetime exclusion—allowing individuals to transfer a set amount of wealth tax-free either during their lifetime or upon death—is central to this discussion.
Under the Tax Cuts and Jobs Act (TCJA) of 2017, enacted by the Trump administration, the lifetime exclusion rose to unprecedented levels, currently sitting at $13.6 million for individuals and $27.1 million for married couples in 2024. In 2025, the individual lifetime gift and estate exemption amount would increase to $13.99 million or $27.98 million for married couples. However, these provisions are set to expire at the end of 2025, slashing the exclusion amount to approximately $6–$7 million per individual. This looming reduction has created a sense of urgency for advisors and their clients to act before significant tax advantages are lost.
The recent election adds another layer of complexity. Valuation expert David Wiedenfeld emphasizes the uncertainty, stating, “Some people are advising to do gifting before then because it might sunset, but it’s unknown now because the Republicans will control the Congress with a narrow margin.” With a Republican-controlled Congress, there may be efforts to extend or make the higher exclusions permanent. However, political gridlock or opposition from Democrats—who have historically advocated for reducing exclusions and increasing tax rates—could stall these efforts. Wiedenfeld further notes, "If it does sunset, the exclusion will go down significantly.” This uncertainty reinforces the importance of proactive planning to mitigate risks.
Why Now Is the Time to Act
The current window before the TCJA provisions could sunset offers a unique opportunity for strategic gift and estate planning. Taking action now enables individuals to lock in the current high exclusions, potentially saving millions in future taxes.
Proactive planning also offers logistical benefits. For instance, valuations conducted in late 2024 or early 2025 can support multiple transfers across tax years, such as year-end December 31, 2024, and January 1, 2025. This approach maximizes the value of a single valuation report, ensuring compliance while optimizing the timing of wealth transfers. Acting early also helps clients avoid the anticipated bottleneck of IRS filings closer to the 2025 deadline, reducing the risk of delays and errors.
Solid Valuations Are Paramount to Effective Tax Planning
Amid the uncertainty, one thing remains clear: Accurate and defensible business valuations are more critical than ever. They underpin effective tax planning, helping clients avoid overpaying taxes or triggering penalties from underreporting. And the complexity of gift and estate tax planning, especially in a politically volatile landscape, calls for a collaborative approach. Challenges like IRS scrutiny and complex ownership structures demand meticulous attention, but also offer opportunities to uncover significant tax efficiencies. Valuation professionals are essential in this process, providing expertise to determine the fair market value of complex assets such as private businesses, real estate, and investments. By working closely with estate planning attorneys and CPAs, valuation experts help with strategies tailored to anticipate legislative scenarios, optimizing valuation timing and leveraging discounts for optimal outcomes.
Discounts for lack of control (DLOC) and lack of marketability (DLOM), for instance, enable clients to transfer more wealth within exclusion limits. Valuation expert Hong Yoo explains, “A valuation report for gift and estate tax purposes can stay effective for several months, allowing for cost-saving transfers in at the year-end and into the new year, such as in December and in February.” By timing valuations strategically, clients can maximize their tax advantages while minimizing costs.
With the anticipated increase in IRS scrutiny, transparent reporting and robust disclosures are crucial. Comprehensive documentation reduces the risk of disputes, strengthens the defensibility of valuations under audit, and protects the client and the valuation expert from IRS scrutiny.
Choose Redwood
The scramble to beat the potential cutoff may be stressful, but choosing a trusted valuation partner doesn’t have to be. Redwood Valuation offers unparalleled expertise to support high-net-worth individuals and their advisors in navigating gift and estate tax planning. With a team of highly qualified appraisers who have completed thousands of valuations across diverse asset types, Redwood provides accurate, timely, and unbiased opinions of value that stand up to the scrutiny of auditors, attorneys, and regulatory agencies. Redwood adheres to the highest valuation standards, ensuring clients receive the best possible guidance for preserving their wealth, and has had valuation reports in complex large taxable matters pass IRS scrutiny with no deficiency or changes in valuation amounts.
Conclusion
The post-election environment presents both risks and opportunities for high-net-worth individuals looking to preserve their wealth. With the future of gift and estate tax exclusions uncertain, the need for proactive planning and collaboration has never been greater.
By acting now, clients can secure the benefits of historically high exclusions while mitigating the potential impact of future tax changes. Estate attorneys, valuation professionals, and CPAs must work together to navigate this evolving landscape, ensuring that clients maximize their tax advantages and protect their estates for generations to come.