Potential Senate stalemate: Trump's bill and estate planning in uncertain times
Nathan Palmer, Tax Manager, and Kobe Ramanan, Tax Specialist
Berry, Dunn, McNeil & Parker, LLC
The House and Senate agree on an increased lifetime gift and estate tax exemption – $15 million for individuals, or $30 million for married couples, indexed for inflation. As the “One Big Beautiful Bill” appears poised to make this exemption permanent, many are breathing a sigh of relief. But with a narrow partisan majority in the Senate, the path forward remains uncertain.
It’s important to remember that we are legislatively not over the finish line. Given the 53-47 partisan split in the Senate, just four hold-out Republican senators could derail the bill and revert the exemption to pre-TCJA levels. What’s the chance four Republicans will hold out? That is unclear, but with only seven months left in the year, time is short. Regardless of the outcome, this juncture presents a valuable opportunity to redirect uncertainty into action by revisiting your trust and estate planning strategies with a fresh perspective and renewed purpose.
In our recent presentation, “The Uncertainty of TCJA: Navigating Estate Planning in a Changing Landscape,” we explored how strategic estate planning, especially in conjunction with skilled business valuations, can help reduce lifetime transfer taxes and strengthen the legacy you leave behind. With the current landscape ever shifting, windows of opportunity may close, making now an ideal time for you, your family, and your advisors to consider what strategies will apply to your unique situation.
One powerful strategy to consider in your estate planning is the Intentionally Defective Grantor Trust (IDGT). When drafted correctly, this type of trust is designed so that its assets are excluded from your taxable estate, yet you – as the grantor – are responsible for paying the income tax on the trust’s earnings.
The IDGT offers a powerful dual benefit. First, trust assets grow free of income tax and defer estate taxes, allowing compounding appreciation to work more effectively over time. Second, when the grantor pays income tax from personal assets that are within their taxable estate, it further reduces the grantor’s taxable estate on a dollar-for-dollar basis, maximizing the overall wealth transferred to heirs. This payment of income taxes functions implicitly as an indirect gift to the trust yet does not reduce the grantor’s lifetime exemption amount.
Even if the exemption is made permanent, proactive planning remains essential. Transferring assets to an IDGT now locks in their current fair market value on the date of transfer – an important consideration in an inflationary market. The longer these assets are outside of your estate, the more appreciation will occur outside of your estate. This results in less assets subject to estate tax upon the passing of the grantor. When transferring interests in privately held business or partnerships, valuation discounts – such as lack of marketability or control – can significantly reduce the taxable value of the gift. This allows you to retain larger amounts of your available exemption, transfer greater value to future generations, and circumvent uncertainties imposed by the external environment.
While much attention is focused on federal estate tax reform, state-level taxes can be just as impactful. For example, Washington state recently passed Senate Bill 5813, setting the top estate tax rate at a staggering 35% for taxable estates over $9 million. States like Massachusetts, New York, and Minnesota also maintain high rates or lower thresholds. These differences make it even more important to take charge of your planning and protect the legacy you leave behind.
Taking control of your estate planning
Whether or not the current legislation becomes law, one thing is certain: the opportunity to take control of your estate plan is here—and your forward-looking planning now can make remarkable differences down the line. Acting now allows you to take advantage of favorable conditions, protect your legacy, and ensure your wealth is transferred in a way that reflects your values and intentions.
But estate planning isn’t just about reacting to tax law changes. It’s about building a strategy that fits your life, your family, and your long-term goals. That’s why this moment—while the window is still open—is ideal for thoughtful reflection and proactive collaboration with your advisors. With the right guidance and tools, you can turn today’s uncertainty into tomorrow’s peace of mind.
Our mission at BerryDunn is to empower the meaningful growth of our people, clients, and communities. If you have questions about your unique situation, or would like more information, please contact our Family Office team.
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BerryDunn’s Family Office services team has the expertise needed to help your family office navigate accounting, tax, and business issues. Based out of our Boston office, we provide a full suite of services, including outsourced accounting; CFO, controller, and back office services; tax planning and compliance; business valuation; succession planning; IT consulting; and project management. |