Reviewing recent and upcoming changes to the tax code could benefit your wealth planning for the year to come — and the years ahead.
Senior Wealth Planning Strategist,
Wells Fargo Wealth & Investment Management Wells Fargo Bank, N.A
The end of the year is a time of celebration with family and friends as we look forward to what’s to come. From a wealth-planning perspective, what’s to come could include significant change — especially as some tax code changes are scheduled at the end of 2025.
Given the uncertainty of potential changes to the tax laws, maximizing annual and lifetime exclusions while minimizing transfer taxes is only one part of overall wealth and estate planning, but there’s a window of opportunity today that makes planning more important than ever. Here are four issues to discuss with your key advisors.
1. Exemption rates are likely going to change
The Tax Cuts and Jobs Act of 2017 (TCJA), which doubled the estate, gift, and generation-skipping transfer (GST) tax exemption amounts, is scheduled to sunset at the end of 2025. For 2024, the tax-exempt federal estate and gift tax threshold is $13.61 million per individual ($27.22 million for couples). This number will rise in 2025 to roughly $14 million per person ($28 million per couple). After that, unless Congress takes affirmative steps to extend the TCJA, these numbers will be cut in half.
In light of these potential tax changes, you may want to revisit your estate plan and discuss actions to consider with your advisors to take advantage of the current higher exemption amounts.
2. Understand lifetime giving opportunities in light of tax reform
While you should consider having those conversations with your advisors to help plan in advance of the potential tax changes, you might be worried that gifting assets now may leave you without money you may need to live comfortably. Your advisors can discuss a number of solutions, including trusts, such as spousal lifetime access trusts and qualified terminable interest property trusts, and partnership structures that could strike the right balance for your situation.
Trust design can be complicated, so be sure to enlist the help of an experienced estate planning attorney to guide your decisions and help maximize benefits.
3. Charitable giving could have a bigger impact
For 2024, the standard deduction for married couples filing jointly is $29,200 ($14,600 for single filers). As a result, it’s difficult for many taxpayers to itemize their deductions and potentially get a tax benefit from their charitable contributions.
One way to maximize the impact — to your taxes and to the organizations you support — is through a strategy known as “bunching,” where you group together multiple years of charitable contributions. Consider gifting a one-time lump sum to a charitable organization or making a large gift to a donor-advised fund. Donations can then be distributed over several years to the charitable organizations of your choice.
If you are age 70½ or older, you could also consider the potential benefits of making tax-free qualified charitable distributions (QCDs) directly from your Traditional IRA to 501(c)(3) nonprofits. Additionally, you are able to make a one-time QCD paid directly from your IRA to certain split-interest entities that qualify. The QCD annual limit for 2024 is $105,000. The QCD limit to certain split-interest entities is $53,000 in 2024, indexed for inflation. A QCD can satisfy all or part of your required minimum distribution, or it can exceed it and the funds would be excluded from your taxable income.
4. Secure 2.0 Act may affect education gifts
A 529 education savings plan for a family member can be a worthwhile gift. Previously, contributing too much to a 529 was a concern because distributions from the plans that aren’t used for qualified education expenses can be subject to income taxes and a 10% additional tax.
Thanks to the Secure Act 2.0, designated beneficiaries of 529 educational savings plans can make rollover contributions from their 529 to a Roth IRA if they have excess funds. There are complex rules surrounding this opportunity; your tax advisor can help you navigate those issues. Rollovers can add flexibility to your gifting strategy and allow the 529 beneficiary to use their tax-advantaged funds to jump-start their retirement nest egg, for example, or make a down payment on a house.
Whether any of these strategies can help you depends on your family’s individual situation. There is no one-size-fits-all method to tax and wealth transfer planning. The uncertainty surrounding tax laws in today’s environment is a good reminder to talk about these opportunities with your advisors sooner rather than later.
Wells Fargo Wealth & Investment Management (WIM) provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
Trust Services are available through Wells Fargo Bank, N.A. Member FDIC and Wells Fargo Delaware Trust Company, N.A. Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.
Donor-advised fund donations are irrevocable charitable gifts. The sponsoring organizations maintaining the fund have ultimate control over how the assets in the fund accounts are invested and distributed. Donor-advised funds donors do not receive investment returns. The amount ultimately available to the donor to make grant recommendations may be more or less than the donor contributions to the donor-advised fund. While annual giving is encouraged, the donor-advised fund should be viewed as a long-term philanthropic program. Tax benefits depend upon your individual circumstances. You should consult your tax advisor. While the operations of the donor-advised fund and pooled income funds are regulated by the Internal Revenue Service, they are not guaranteed or insured by the United States or any of its agencies or instrumentalities. Contributions are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Donor-advised funds are not registered under federal securities laws, pursuant to exemptions for charitable organizations.
