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30 November 2023

It’s Time to Worry About Estate Taxes Again

When Congress liberalized the tax rates and rules in 2017 via the Tax Cuts and Jobs Act to significantly raise estate tax exemptions, many financial advisors stopped worrying about estate planning. After all, the exemptions of over $12 million for individuals and $24 million for couples significantly lowered the addressable market for wealthy families concerned about paying estate taxes.

Of course, even in 2017, many estate planning needs and methods remained to help facilitate the orderly transfer of wealth. However, the Act drastically reduced the worry of creating liquidity for hefty estate tax bills.

Why are the alarm bells ringing?

Today, estate planning alarm bells are ringing with the potential of the Tax Cuts and Jobs Act sunsetting in 2025, returning to pre-2017 levels: $6.5 million for individuals and $13 million for couples. This radical change could create a much larger addressable market for advisors to advise upon in the form of more focused estate planning requirements to minimize the tax hit. According to industry experts, tax lawyers, and accountants, investors have two options:

  • Make large gifts now
  • Establish a trust and move assets out of estates

How financial advisors can prepare their clients

In a recent SS&C Innovest whitepaper, Estate Tax Law Changes - How Financial Advisors Can Prepare Clients, we explore how advisors can work with clients and their network of professionals to prepare for these potentially dramatic alterations in the estate tax planning world. The key message is that while it may be a year or so away, it is urgent to start planning today.

“These changes may seem a long way off, but the serious planning that financial advisors must pursue to have significant impacts on future tax bills takes time, so starting now can differentiate your firm today.”

The whitepaper lays out several trust strategies ranging from removing personal assets such as homes from estates to moving investment assets and appreciated securities into trusts to minimize tax implications. Specifically, the paper discusses:

  • Spousal Lifetime Access Trusts (SLAT)
  • Grantor Annuity Retained Trusts (GRAT)
  • Qualified Personal Residence Trusts (QPRT0)
  • Irrevocable Life Insurance Trusts (ILIT)
  • Charitable Trusts (CT)

According to the paper, “If the estate and gift exemptions are allowed to sunset, it will significantly impact financial advisors with clients who individually have a net worth above $12 million.” Further, it’s important to note that “Trusts are complicated legal documents that require advisors to fully understand their intricacies and a poorly designed trust could be found invalid by the IRS. Proven financial tools such as SS&C’s Trust Suite smooth the complexities associated with the paperwork and management of trusts with best-in-class technology.”

The SS&C Trust Suite is an offering of SS&C Technologies that merges the power of industry-leading trust offerings from SS&C Innovest, the Black Diamond® Wealth Platform, SS&C Salentica, and more. A complete solution for trust companies and wealth management firms, the SS&C Trust Suite is a unique end-to-end solution for trust firms to deliver a competitive client experience while increasing operational efficiency.

To learn more, download the whitepaper, Estate Tax Law Changes - How Financial Advisors Can Prepare Clients.