The tax flood is coming. Here’s how to stay afloat
Waiting and hoping for a “perfect” estate planning forecast can leave many families unprepared and stranded when the “tax waters” inevitably rise.
Procrastination or reliance on speculation that President Donald Trump’s administration and Congress might delay the scheduled sunset or repeal the estate tax altogether is risky and could lead to missed opportunities. While such outcomes theoretically are possible, they remain far from certain, especially in the short term.
The U.S. political cycle is inherently designed for change, making it difficult to predict the actions or priorities of future administrations or Congress. Most estate planners agree that the estate tax is unlikely to disappear, as the government benefits from the revenue generated from taxing large concentrations of wealth.
The bottom line is that, sooner or later, the “tax floodwaters” are coming. Families still have time to get to “high ground,” but action must be taken now to avoid being swept away.
Why act now?
Under current tax laws, unless changed by both presidential and congressional action, the historically high federal estate tax exemption of $13.99 million per individual (effective Jan. 1, 2025) will sunset to about $7.4 million (adjusted for inflation from $5 million) on Dec. 31, 2025. This will cut the exemption roughly in half, exposing families to significant and unnecessary taxation and financial burdens.
With a 40% federal estate tax rate and Illinois’ top estate tax rate of 16%, losing any portion of these exemptions can result in devastating financial consequences. Acting now to implement effective estate planning strategies can protect your family’s financial future and provide peace of mind, no matter when the “tax waters” rise.
Example of the cost of inaction
Illinois residents face an additional layer of complexity as the state imposes its own estate tax, separate from and in addition to the federal estate tax. Consider this example illustrating the benefits of planning now:
• Estate valued at $10 million without a Spousal Lifetime Access Trust (SLAT): Pays $926,923 in Illinois estate taxes.
• With $4 million gifted to a SLAT: Illinois estate taxes are reduced to $456,071.
• Total savings from gifting to a SLAT = $470,852, that 50% savings.
This simple example demonstrates the power of acting now to reduce estate tax liability significantly.
How to get to estate planning high ground
Estate planning is a race against time, but the good news is that families acting now can still take full advantage of the current exemptions and income tax opportunities. Effective strategies include:
• SLAT planning: Protect assets while allowing spousal access to trust income and distributions.
• Upstream planning: Leverage gifting strategies to benefit future generations.
• Step-Up Rescue Financing (SURF) planning: Preserve capital gains basis step-up opportunities when using trusts.
• Beneficiary Income Accumulation Trust (BIAT) Planning: Shield assets and accumulate income tax efficiently.
• Direct gifting: Optimize use of the annual gift tax exclusion and other exemptions.
Other advanced techniques also may be available depending on your unique circumstances. These strategies can help families minimize tax burdens and preserve wealth for future generations.
Do not wait
The time to act is now. Waiting for “perfect” conditions or relying on uncertain political outcomes may result in missed opportunities and unnecessary tax exposure.
By acting today, you can take control of your estate planning, secure your family’s financial future, and ensure peace of mind in an unpredictable tax landscape. Contact your estate planning adviser to begin the process of getting to “high ground” before the floodwaters rise.
• Andy Kelleher is co-founder of Kelleher + Holland, LLC and Monica Gurgiolo is the firm’s Estate Planning and Estate + Trust Administration cochair. K+H is a nationally recognized, full-service law firm with more than 70 legal professionals headquartered in North Barrington. They can be reached at akelleher@kelleherholland.com and mgurgiolo@kelleherholland.com.