Friday, March 14, 2025
By Jeff Velastegui
There’s an old adage about regret: People generally feel worse about the things they didn’t do and the opportunities they missed, rather than the things they did do, even if the result wasn’t perfect. At the end of 2025, many tax laws in the Tax Cuts and Jobs Act of 2017 (TCJA) may “sunset,” meaning the favorable tax provisions will expire and revert to pre-2017 law. At the Legacy Group, we are working with high-income clients and business owners to navigate these upcoming changes and the effect on their estate and legacy planning.
Understanding the “Sunset” of Current Estate Tax Exemptions
For wealthy families, an important expiring provision includes the current estate tax exemptions of $13.99 million per individual. Barring extensions by Congress before the end of the year, this estate tax shelter may revert to around $7 million per individual, potentially hampering the ability to transfer wealth efficiently. This does not include consideration of NY state taxes on applicable estates.
For families and business owners, this change could mean losing millions to unnecessary taxes—money that should be directed toward your loved ones’ futures and your legacy. Prudent planning suggests taking the time now to understand the implications of these changes on your wealth and being proactive in implementing strategies to mitigate these changes.
Advanced Techniques for Tax-Advantaged Wealth Transfers
- Annual Gift Exclusion: The annual gift exclusion ($19,000 per person in 2025 and indexed with inflation) is an easy-to-implement tool to transfer wealth tax-free to heirs and loved ones.
- Grantor Retained Annuity Trust (GRAT): A GRAT is a trust that allows the grantor to give assets to an irrevocable trust while retaining the right to receive income from the trust for a set period of time, after which the assets go to the trust beneficiaries. A GRAT is a wealth transfer tool that can be effective in reducing estate and gift taxes as well as provide some asset protection.
- Irrevocable Life Insurance Trust (ILIT): This is an irrevocable trust that owns and holds life insurance on the grantor’s life. The grantor uses their annual gift exclusion to make tax-free gifts to the ILIT each year. The beneficiaries allow the gifts to pay the annual policy premiums. When the grantor dies, the death benefit is not included in the grantor’s estate, completely avoids estate taxes, and is distributed according to the terms of the trust. An ILIT is an effective technique used by many high-net-worth families to leave significant tax-free legacies and build dynasties.
- Charitable Remainder Trust: A CRT is effective estate planning tool for philanthropic-minded individuals. These irrevocable trusts allow for contributions of assets to a trust where the trust will pay income to one or more non-charitable income beneficiaries at least annually for their lifetime or for a term of years not to exceed 20 years. After the term is up, the entire remainder is paid to a charity. Additionally, the donor will receive either an income or estate tax deduction upon contribution.
- Spousal Lifetime Access Trust (SLAT): This type of trust allows one spouse to transfer wealth to the trust with the other spouse as the trust beneficiary. Through the beneficiary spouse, the donor retains indirect access to the assets for financial flexibility.
How Future Conditions Impact Trust Selection and Structure
For those considering these advanced strategies, it’s crucial to understand the role and necessity of having trust modification provisions (as appropriate and possible) to adapt the trust to changing circumstances to family dynamics, economic conditions, and changing tax law.
Modification provisions might include the following benefits:
- Flexibility to meet evolving needs: Allow grantors or settlors the ability to respond to changing circumstances (marriage, divorce, new or adopted children, or changing financial circumstances.
- Optimizing tax-saving and asset protection opportunities: Tax and asset protection laws change frequently. Having the ability to alter provisions in response avoids the issue of outdated trust provisions that may not be permissible or effective in the future.
- Address changes in family dynamics: As family members evolve and change, grantors may wish to address poor lifestyle decisions, addictive habits or health problems of beneficiaries, and change trust provisions accordingly.
- Include evolving objectives and life values: As legacy tools, trusts often reflect the grantors’ legacy goals and life beliefs. These can change over time, so having the flexibility to amend trust provisions and update such aspirations is essential.
- Adapt to changing market or economic conditions: Trusts often include having wealth management capabilities for trust assets. Changes in market conditions, interest rates, or investment opportunities may affect the capabilities and usefulness of the trust in realizing the goals of the grantor(s) and/or the beneficiary(s). Flexibility in how the trust assets are managed is important as well as the ability to respond to tax law changes.
Key Opportunities in the Current Economic Environment
For many of these strategies, interest rates and economics play a significant role in determining which trust or technique is best suited to meet the individual’s or family’s stated objectives. Here are some of the current opportunities that could be available in 2025.
- Utilize Grantor Retained Annuity Trusts to minimize gift tax liabilities. The lower the interest rate, the larger the potential gift tax-free transfer of assets when the trust term ends.
- Use a Qualified Personal Residence Trust (QPRT) to transfer a personal residence to a trust while retaining the right to live there for a set period. Higher interest rates result in a larger discount on the initial gift and a smaller gift for gift tax purposes.
- Contribute highly appreciated and currently-high-valued real estate to a charitable remainder trust for significant tax benefits while providing income.
- Prioritize properties with strong cash flow to offset potential increases in borrowing costs due to higher interest rates.
- Regularly review existing trust debt and consider refinancing options to obtain better terms in a changing interest-rate environment.
- Stress-test trust portfolios to evaluate resilience against potential economic changes caused by rising or falling interest rates.
Looking Ahead: Your Next Steps
True wealth is measured not just in dollars but in the impact you leave behind. Whether it’s establishing your business legacy, minimizing estate taxes, or fostering a sense of purpose among future generations, The Legacy Group’s estate and legacy planning strategies provide a clear path forward.
As a fee-based fiduciary firm, we’re here to guide you with only your best interests in mind—no sales targets, no product-driven recommendations. Our focus is on preserving not just your wealth, but also the values and vision that make up your unique legacy.
With the 2026 changes approaching, now is the perfect time to get your estate plan ready for success and review your trust planning. Reach out to us to schedule a consultation and take that first important step toward supporting your legacy for future generations.
To schedule your trust planning review, call (516) 682-3383 or email jvelastegui@legacygroupny.com.
Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting advisors as appropriate.
Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. The Legacy Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. [1393 Veterans Memorial Hwy, Suite 307S, Hauppauge, NY 11788 (516) 682-3383]. CRN202803-8259123
