As the sunset of the Tax Cuts and Jobs Act (TCJA) approaches, advisors must act swiftly to help their clients take advantage of generous estate and gift tax exemptions before they revert to significantly lower levels. Here’s what you need to know to guide your high-net-worth clients through this critical planning opportunity.
Understanding the TCJA and Its Expiring Benefits
The TCJA, signed into law on January 1, 2018, brought sweeping changes to the U.S. tax code. Among its provisions was a substantial increase in the gift and estate tax exemption: $10 million for individuals and $20 million for couples. Both amounts are indexed for inflation, resulting in the 2023 exemption levels of $12.92 million for individuals and $25.84 million for couples.
However, these elevated exemptions are temporary. On January 1, 2026, the TCJA provisions will sunset, cutting the exemptions by approximately half—down to an estimated $5 million for individuals and $10 million for couples (also indexed for inflation).
This is a "use it or lose it" scenario for your clients. The sunsetting of the TCJA could have significant implications for those with substantial estates, potentially resulting in higher estate taxes and reduced opportunities for wealth transfer.
Strategic Planning Opportunities
Now is the time to revisit estate and retirement plans to capitalize on these expiring benefits, especially for legacy planning, retirement funding, life insurance purchases, and long-term care planning. Delaying could mean missing this unique window to lock in higher exemptions, potentially jeopardizing your clients’ financial security and estate preservation goals. The looming deadline calls for strategic estate planning. Here are key tools and tactics to consider:
- Spousal Lifetime Access Trusts (SLATs) allow couples to transfer significant assets into a trust while retaining some indirect access to the funds. One spouse sets up the trust, naming the other a discretionary beneficiary. This structure provides access to funds if needed while keeping the assets out of the taxable estate. This strategy locks in the current high exemption and includes flexibility in financial planning.
- Irrevocable Life Insurance Trusts (ILITs) remove life insurance proceeds from the taxable estate. The trust owns the life insurance policy, protecting its death benefits from federal and state estate taxes. This strategy protects beneficiaries and reduces the taxable estate.
High-net-worth individuals can also make significant lifetime gifts directly to heirs or other beneficiaries. By utilizing the current gift tax exemption to transfer wealth now, those amounts are not included in the taxable estate later. This approach allows for the immediate reduction of the taxable estate while leveraging current exemptions.
How It Works: A Hypothetical Case
Let’s consider a 60-year-old couple with a $20 million net worth and a <5% compound annual growth rate. By life expectancy, their estate could grow to over $80 million. If they gift $5 million into a trust today, that amount and its subsequent growth are removed from the taxable estate. This strategy could reduce their taxable estate by over $20 million at life expectancy, saving nearly $8 million in federal estate taxes.
Similarly, suppose a client gifts $8 million now and passes away after the exemptions decrease. In that case, the lifetime gift will still benefit from the higher exemption available when it was made.
As the TCJA sunset nears, advisors should schedule estate plan reviews with high-net-worth clients to identify opportunities for tax-efficient wealth transfer. They should also implement strategies like SLATs, ILITs, and lifetime gifts to secure the current exemptions and educate clients on the potential impact of the exemption reduction and how proactive planning can mitigate estate tax liabilities.
Leverage Technology for Tax-Efficient Estate Planning
The TCJA’s elevated gift and estate tax exemptions provide an extraordinary—but temporary—opportunity to transfer wealth tax-efficiently. By acting now, you can help your clients preserve their legacies, protect their families, and save millions in taxes.
Firms using the SS&C Black Diamond® Wealth Platform and the Advent Insurance Marketplace Powered By DPL (AIM) empower their advisors seamlessly incorporate SLATs and ILITs into a client’s holistic financial plan. AIM’s deep integration with Black Diamond helps to eliminate the historical barriers fiduciary advisors associate with recommending annuities and insurance while also building a fee-based AUM. Start planning today to ensure your clients reap the benefits of the TCJA’s favorable provisions while they last.
Learn how SS&C’s Black Diamond Wealth Platform can help benefit your firm’s strategy. Request your personal demo, call 1-800-727-0605, or email info@advent.com today.
