Understanding the Aftermath: The Impact of the Election on Tax Law Changes
With Election Day behind us, one significant area that has captured the attention of donors and their advisors alike is the future of tax laws, particularly concerning the estate tax exemption. Currently set at $13.61 million per person, this exemption is slated to revert to approximately $7 million per individual on January 1, 2026, barring any legislative changes—a scenario with many in the financial and philanthropic sectors holding their breath.
It’s crucial to note the pivotal phrase: “absent intervening legislation.” The outcome of the November 2024 elections will not immediately alter estate tax laws. Instead, a potentially drawn-out legislative journey lies ahead. The newly elected Congress won’t convene until January 2025, when the arduous budget reconciliation process will begin—a multi-step procedure that includes the President’s budget proposal, budget resolutions from both chambers, legislation drafting by various committees, and subsequent votes on a consolidated omnibus bill.
Given this timeline, the fate of the estate tax exemption hangs in the balance, leaving many high-net-worth individuals and their advisors in a quandary. With significant financial stakes at play, the pressing question arises: Should clients begin making strategic gifts now, perhaps to family members or to their donor advised fund at the Foundation, in anticipation of the exemption’s reduction? Or is the wait-and-see approach more prudent?
Delaying this decision can be fraught with complications. Implementing a comprehensive estate or business succession plan at the last minute is challenging logistically and carries risks. The IRS may scrutinize last-minute arrangements, invoking doctrines such as the step transaction and reciprocal trust rules to combat perceived tax avoidance.
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What’s Next for Donors and Their Advisors?
Considering these complexities, proactive planning is essential. Here are actionable steps for donors and their advisors:
Engage in Open Dialogue. For financial advisors working with charitably-minded families, this is the time to initiate conversations about charitable giving and estate planning. Exploring how these charitable intentions can coexist with tax strategy is a win-win scenario that can lead to intelligent, impactful decisions.
Leverage Greater Houston Community Foundation. Advisors should encourage clients to connect with the Foundation early in the planning process. Our philanthropic advisors offer invaluable resources and expertise in structuring gifts and navigating the philanthropy landscape. Discussing options for donor advised funds now can set the stage for more strategic planning later.
Assess Charitable Interests. If you’re uncertain about a client’s interest in charitable giving, ask them directly. Engaging your clients in meaningful discussions about their philanthropic priorities reveals opportunities for gift planning and strengthens your advisory relationship.
Explore Charitable Gift Options. In addition to traditional cash contributions, donors may find significant benefits in exploring various charitable gift options that can maximize both philanthropic impact and tax advantages. Evaluating assets such as appreciated stocks, business interests, and real estate can provide innovative avenues for giving.
Stay Informed and Prepared. Given the current volatility surrounding tax laws, staying informed and prepared to pivot is crucial. The Foundation is your trusted philanthropic partner, monitoring legislative developments to ensure donors have the latest information to maximize their philanthropic and financial strategies.
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Navigating the Complexities of Estate Tax Uncertainty
In this era of uncertainty, having clarity and foresight in estate planning can bring profound peace of mind. The Foundation is dedicated to empowering donors and their advisors to address their concerns proactively and navigate the complexities surrounding the anticipated sunset of the higher estate tax exemption. With the stakes high, informed actions taken today can maximize the potential impact of your charitable initiatives for tomorrow.
Our team of experienced philanthropic advisors is committed to guiding you every step of the way, ensuring that your giving efforts have a lasting impact on our communities. Together, we can cultivate high-impact philanthropy that inspires change and fosters meaningful connections. Please contact Kevin Pickett or Andrea Mayes to discover how we can help you maximize your philanthropic and financial strategies.
More Helpful Articles by Greater Houston Community Foundation:
- 3 Tips for Keeping Your Advisors in the Loop for Maximum Impact
- How Charitable Giving Can Enhance Your Legacy Planning
- The Growing Influence of Women in Philanthropy
- How Do Community Foundations Work? Leveraging the Community for Smart Giving
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