Philanthropy May Be Part of the Answer
Under the Tax Cuts and Jobs Act of 2017, individuals can shelter up to $13.61 million in 2024 from estate tax liability. For couples, that number is $27.22 million. However, unless Congress acts to change the law, it’s scheduled to sunset on Dec. 31, 2025.
“It’s a cumulative total of what you give during your lifetime plus what you give away when you die,” said April Hicks, a partner in the Stuart-based accounting and advisory firm Carr, Riggs & Ingram. She’s also a member of the Community Foundation’s Philanthropic Advisory Council.
“So, if you gave $10 million right now, during your lifetime you would have $3,000,610 equivalent dollars left to use when you pass away before you would have an estate tax,” she said.
If that law is allowed to expire, the lifetime gift exemptions would revert to 2017 levels, or about half of what they are now, somewhere between the $6 to $7 million level as indexed for inflation. That could expose estates above that to a 40 percent estate tax liability.
Due to this fall’s presidential election, there’s uncertainty on exactly what will happen, Hicks said.
One scenario would be for Congress and the President to agree to make changes, and something totally different comes along. Another option could be that they agree to keep it at the current level. The third scenario is that they allow the 2017 law to expire, she said.
For the ultrawealthy, the change doesn’t matter much since it won’t change their lifestyle. For those whose estates are below the $6 million level or so, there’s not much impact either since they probably won’t have estate tax exposure if the unified credit goes back to the 2017 indexed levels.
Those who fall in between are the ones that have difficult decisions to make, Hicks said.
“That’s when it becomes a hard choice for if you have, let’s just say, $15 million,” she said. “Do you want to give away $13 and change and only keep a million? I don’t know.”
Hicks recommends working with a trusted advisory to sort through the best options for each person.
“You have to customize it for each and every individual,” she said.
If individuals are philanthropically inclined, there are different types of planning that could be considered. One is an outright bequest of gifts to charities, such as the Community Foundation. Those are not estate taxable.
“You could do something like a charitable remainder trust, where you keep income for life and then the remainder goes to the charity,” Hicks said. “You could do a charitable lead trust. You could do different types of planning that would involve, meeting your philanthropic goals and maybe helping to control the estate tax.”
A charitable lead trust is a way to donate assets to a charity for a set period of time, while also providing for the donor’s family or other beneficiaries. The Community Foundation can be a beneficiary with those types of trusts.
While philanthropic giving is a tax savings, there are many other benefits as well.
“It also enhances people’s lives because you’re participating in your community,” Hick said. “You’re now doing directed philanthropy.”
That way, donors are guiding the money toward what’s important to them instead of letting the government make decision on how to spend it.
Hicks suggested working with the Community Foundation to find the best option, whether that’s a donor advised fund, a legacy fund or some other fund that can have an impact in the community.
