As we wind down the year, it’s natural to reflect on the lessons, challenges, and wins of 2024. The close of December brings an opportunity not only to look back but also to plan ahead with clarity and intention. What will your legacy look like in 2025 and beyond? What steps will you take to ensure it’s not just preserved but thrives for generations to come?
At
Roots and Wings Legal
, we believe legacy planning is about more than legal documents. It’s about aligning wealth with values, protecting assets for future generations, and fostering multigenerational harmony and impact. As we step into 2025, let’s explore key insights and actionable steps to help you future-proof your legacy.
Estate and Gift Tax Insights for 2025
2025 brings several noteworthy updates to estate and gift tax planning, which underscore the importance of proactive and flexible strategies:
- Estate and Gift Tax Exemptions: While the estate and gift tax exemption remains historically high at $13.99 million per individual ($27.98 million per married couple) in 2025, the Tax Cuts and Jobs Act (TCJA) is set to sunset on December 31, 2025, reverting to approximately $5 million adjusted for inflation. Although there’s speculation that exemptions may stay elevated under current political sentiment, the reality is that estate tax exemptions are subject to the shifting winds of politics. Since none of us can predict the future, planning for flexibility is essential.
- Annual Gifting Opportunities: The annual gift tax exclusion allows for tax-free gifting up to $19,000 per person, along with tax-free transfers for medical expenses, education, and charitable contributions. For families looking to reduce taxable estates while fostering generosity, these provisions remain critical tools.
- Gifts to Non-U.S. Citizen Spouse: The annual exclusion for gifts to a non-U.S. citizen spouse will increase to $190,000 in 2025. Unlike for U.S. citizens, where spouses can gift each other unlimited amounts without incurring any gift tax, this increase highlights the need for careful planning to maximize tax benefits while ensuring adequate provision for a non-citizen spouse.
- Wealth Transfer and Asset Protection: With high exemptions enabling the transfer of more wealth, the need for robust asset protection and advanced planning while alive has never been greater. The "shirtsleeves to shirtsleeves in three generations" phenomenon—where generational wealth dissipates by the third generation—remains a stark reminder of why thoughtful planning is necessary.
Planning for Flexibility
One of the most critical elements of effective estate planning is flexibility, particularly after the first spouse passes. Recent legal cases, such as In re Estate of Anenberg and McDougall v. Commissioner, highlight the importance of having adaptable strategies in place.
For modest estates, where the focus is on a smooth wealth transfer at death, incorporating multiple layers of flexibility is essential:
- Clayton Elections and QTIP Trusts: These tools are integral for ensuring tax efficiency and long-term security, allowing families to adapt their plans based on changing tax laws or family circumstances, thereby preserving wealth while maintaining control.
- Qualified Domestic Trust (QDOT): For non-U.S. citizen spouses, a QDOT is essential to defer estate taxes that would otherwise be due because the unlimited marital deduction is not available. A QDOT allows the deferral of estate taxes until distributions are made from the trust or upon the death of the surviving spouse, ensuring that the non-citizen spouse is supported while managing tax liabilities.
- Limited Power of Appointment: Including limited powers of appointment allows the surviving spouse to adjust the distribution of the residuary estate within a specified group, providing flexibility to respond to changes in family dynamics or financial needs without triggering adverse tax consequences.
- Trust Protector: A trust protector can be appointed to modify trust terms or make other decisions to ensure the trust remains aligned with the grantor's intent and adapts to legal or familial changes.
- Decanting Provisions: Decanting provisions enable trustees to transfer assets into a new trust with different terms, offering a mechanism to adjust the trust structure as needed to better serve the beneficiaries' interests.
Advanced Strategies for Multigenerational Wealth
For families with a multigenerational mindset, advanced tools provide pathways to create harmony and preserve wealth across generations:
- Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs): These are increasingly popular among families with appreciated assets. They allow for tax-efficient giving while keeping wealth within the family and aligned with philanthropic values.
- Governance Structures: Implementing governance structures, such as family councils or boards, can help manage family dynamics and decision-making processes. These structures provide a formal mechanism for addressing family issues, setting goals, and ensuring that the family's values and vision are upheld across generations.
- Alphabet Soup of Estate Planning: This refers to the array of estate planning tools and strategies available, such as Dynastic Trusts, GRATs (Grantor Retained Annuity Trusts), IDGTs (Intentionally Defective Grantor Trusts), and FLPs (Family Limited Partnerships). Each tool serves a specific purpose, whether it's minimizing taxes, protecting assets, or facilitating wealth transfer, and can be tailored to fit the unique needs of a family.
These strategies underscore that legacy planning isn’t just about avoiding taxes—it’s about fostering harmony and ensuring wealth is a tool for stewardship, not a source of conflict.
The Road Ahead: 2025 and Beyond
As we enter 2025, we are dedicated to helping families move beyond simply transferring wealth to establishing a living legacy of multigenerational impact. By leveraging advanced planning strategies, we aim to empower first-generation wealth creators to adopt a multigenerational mindset—expanding their focus beyond probate avoidance and estate tax planning to building a legacy rooted in stewardship, harmony, and resilience that breaks the "shirtsleeves to shirtsleeves" cycle.
To kickstart this effort, we’re thrilled to introduce new tools in development to be launched in early 2025:
- Legacy Readiness Quiz: An interactive tool designed to help families identify gaps in their current plans and uncover opportunities for alignment and impact.
- Legacy Mini-Course: A comprehensive, self-paced course that guides families through the essential elements of legacy planning, from visioning to advanced strategies like charitable planning and multigenerational impact.
These resources reflect our commitment to making legacy planning accessible, actionable, and impactful.
Your Next Step
As you take time this holiday season to relax and reflect, consider the legacy you’re building. Does your plan align with your values? Are you confident it’s ready to withstand the complexities of multigenerational wealth transfer?
The quiet days of December are the perfect time to start setting intentions for the new year. Whether it’s reviewing your existing plan, exploring new tools, or simply having conversations with loved ones, the steps you take today will shape the future. Let’s make 2025 the year we work together to create a legacy of harmony, resilience, and impact. Stay tuned for our upcoming resources, and if you’re ready to take the first step, we’re here to help.
It's Morphin Time!