Upcoming Estate Tax Changes Could Impact High-Net-Worth Individuals in Georgia
High-net-worth individuals in Georgia, like those nationwide, face an evolving estate planning landscape. With a pending reduction in the federal estate tax exemption set to take effect at the end of next year, there has never been a more critical need to assess the effectiveness of your estate plan. If you have substantial assets, adjusting to this upcoming change in the federal exemption is essential to protecting wealth, minimizing tax burdens, and ensuring a smooth transfer of assets to future generations. Attorney Hailey Brock explains what's at stake.
Why Updating Your Estate Plan is Critical
For Georgians with high-value estates, careful planning helps shield assets from substantial federal estate and gift taxes that can significantly reduce inheritances. "Currently, the federal estate tax exemption sits at a historic high of $13.61 million per individual or $27.22 million for married couples, a result of the Tax Cuts and Jobs Act (TCJA) of 2017," said Hailey. "This high exemption has allowed many wealthy individuals to avoid federal estate taxes, but the TCJA provisions are set to expire at the end of 2025. When this happens, the exemption is projected to drop to roughly $5 million per individual, adjusted for inflation. With this reduction, a significantly larger portion of estates will become subject to federal estate tax, affecting a broad range of high-net-worth clients who had previously avoided estate taxes. It is possible that the current exemption may be extended, but unless Congress passes new legislation, the single taxpayer limit will revert to around $7 million on December 31, 2025. If you are a single person with assets in excess of $7 million, or a couple with assets in excess of $14 million, right now is the critical time to review your estate plan."
Key Considerations for High-Net-Worth Individuals in Georgia Amid Potential Estate Tax Changes
If your estate falls into the high-net-worth category, how might your estate plan need to be adjusted?
Federal Estate Tax Exemption Reduction
When the exemption amount reverts to pre-2018 levels, many more estates will become taxable. High-net-worth individuals who had not planned for federal estate tax exposure due to the current high exemption might face substantial tax liabilities. "For Georgia residents with substantial real estate, business interests, or investment portfolios, a sudden drop in exemption levels could mean a hefty 40% federal tax bill," Hailey said. "We are encouraging our clients to consider gifting strategies to transfer wealth during their lifetimes, thus reducing the taxable estate value."
Gift Tax and Generation-Skipping Transfer Tax (GST) Adjustments
Like the estate tax, the gift tax and generation-skipping transfer tax (GST) are tied to the exemption. High-net-worth individuals who want to transfer wealth to future generations without triggering estate or gift taxes have relied on the GST exemption. However, the upcoming changes will also lower these exemptions. "For those with multi-generational wealth goals, this makes it crucial to take advantage of the current GST exemption by transferring assets to irrevocable trusts or family limited partnerships while the high exemption still applies," Hailey advised.
Georgia’s Income Tax and Planning Opportunities
Although Georgia does not impose an estate tax or inheritance tax, residents still face state income taxes on income generated by their assets. When transferring or liquidating assets as part of an estate plan, high-net-worth individuals need to account for the potential impact on income taxes. "Structuring estates to avoid significant income tax liabilities can be achieved through various means, such as charitable remainder trusts, which allow for a tax deduction while passing wealth tax-free to heirs," said Hailey.
Trust Structures to Maximize Control and Flexibility
Trusts are a cornerstone of estate planning, especially for high-net-worth clients. With anticipated federal tax changes, Georgia residents might consider setting up or adjusting their trusts. "Some irrevocable trusts, for instance, allow individuals to remove assets from their taxable estates permanently, while retaining some control through specific trust structures like dynasty trusts, which can provide for multiple generations," Hailey advised.
Lifetime Gifting Strategies
High-net-worth individuals should look to lifetime gifting as a way to leverage the current high exemption. Gifting assets now not only reduces estate size but also locks in the current exemption level, protecting it from potential future reductions. For those concerned about giving up control, strategies like family limited partnerships or properly structured irrevocable trusts allow them to gift assets while maintaining some decision-making power or income from those assets.
Charitable Giving and Philanthropic Goals
Charitable giving can play a significant role in reducing estate taxes. By creating charitable trusts, high-net-worth individuals can meet philanthropic goals while obtaining tax advantages. Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs), for example, can offer both income and estate tax benefits while supporting charitable causes.
Action Steps for High-Net-Worth Georgia Residents
In light of the upcoming changes, high-net-worth individuals in Georgia should take proactive steps to prepare their estate plans. "A comprehensive review with Kimbrough Law can identify strategies to safeguard wealth, optimize tax outcomes, and meet unique family goals," Hailey added. "Additionally, high-net-worth individuals should consider reviewing and updating beneficiary designations on accounts and insurance policies to ensure alignment with the latest legal developments and personal objectives."
With potential shifts in estate tax laws on the horizon, now is a critical time for high-net-worth individuals in Georgia to focus on proactive estate planning. A thoughtful approach to estate structuring, gifting, and trust creation can help protect wealth and minimize tax exposure, ensuring a lasting legacy for future generations. Kimbrough Law can help you navigate the complexities of this changing legal landscape so you can maximize opportunities and mitigate risk. Call 706.850.6910 to schedule your consultation.
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