CWG Insight Series: Estate Exemption Planning Before It's Too Late

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  • Potential exposure of $11.4 million to estate taxes
  • Opportunity to save $4.56 million in tax if you act quickly
  • Crown’s family office can help solve this problem

When the Trump Tax Act was enacted in 2017, the estate exemption increased drastically – currently $11.7million per individual and $23.4million for a married couple.  This immediately ensured 99.9% of Americans would pay no estate taxes at their death.  Estate planning is much easier when you don’t have to worry about taxes.

That’s the good news.   The bad news is the law sunsets on January 1, 2026, when the exemption is scheduled to drop back down to the $5million previous mark, adjusted for inflation.  At the start of 2026, any individual with more than roughly $6million of assets or a couple with more than $12million will be exposed to estate tax.

This future problem may become an immediate problem, forcing us to act quickly to protect.  There is currently a proposal in play that would drop the exemption amount to an inflation-adjusted $6million, per individual, on January 1, 2022.  There’s no guarantee it gets signed into law, but it only gives us 2 months to make moves to protect assets assuming it does.

As a multi-family office, our firm fortunately, and unfortunately, has many clients that will be affected by this change.  As the CFO to these families, we have eyes on the entire net worth of our clients and can quicky identify those who are impacted.  Most advisors, CPAs and attorneys lack this comprehensive view of a client’s financial world and therefore are not calling attention to something that could cost their clients millions in estate taxes.  

So, what are we doing to protect the wealth that’s been built by the families we advise? Getting assets out of their estate, and quickly.  An individual making a gift of $11.7million dollars, removes those assets from their estate and locks in the full exemption that’s currently available.   This protects $5.7million of assets that will become exposed to estate tax either January 2022 or 2026.  At the current estate tax rate of 40%, this represents a savings of $2.28million in IRS payments at death.  For a married couple making a $23.4million gift, the additional $11.4million of assets now protected saves them $4.56million in death tax payments.  That’s millions of dollars going to the next generation instead of the IRS, a serious win.

For a number of clients, we’ve quickly implemented various versions of Irrevocable Trusts to receive the assets as a gift and lock the exemption. When a gift is made to an Irrevocable Trust, the person making the gift no longer has control of those assets and can no longer benefit from them.  Choosing the right assets takes careful planning and strategically structuring the trust to ensure we have as much flexibility as possible.  

As the CFO of the families we work with, we coordinate the attorneys and CPAs to get the strategy implemented -  and most are filling up with year-end work right now.  If we want to protect assets, we must act quickly as time may be running out.   If your estate is at risk and you don’t have an advisor making recommendations to save on taxes, it’s time to hire a family office and put us to work.

Nick Kolbenschlag - Chief Executive Officer & Co-Founder