Wealth planning for 2024

Planning strategies for a changing tax landscape from the UBS Advanced Planning Group

by Todd D. Mayo: Senior Wealth Strategist, Jacqueline Denton: Senior Wealth Strategist, Jessica Mazzaro Friedhoff: Associate Wealth Strategist, Advanced Planning Group 28 Feb 2024
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When it comes to planning for important goals, staying ahead of changing tax legislation can help you keep on track.  Now is a good time of year to get on top of your planning, especially in light of upcoming potential tax law changes. 

Federal and state income and wealth transfer taxes can be complex, and they affect income tax planning, retirement planning and estate planning. Even Albert Einstein reportedly said, "The hardest thing in the world to understand is income taxes.”1

To help you plan effectively, we highlight a few potential tax law changes with some considerations to keep in mind as you pursue your wealth planning goals.

Making the most of your lifetime exemption

A key aspect of planning involves the gift and estate tax exemption, which is often referred to as the lifetime exemption. In 2017, the Tax Cuts and Jobs Act (TCJA) effectively doubled the estate and gift tax lifetime exemption from $5,490,000 to $11,180,000,2 which adjusts annually for inflation.3  Because of these changes, the 2024 exemption amount is $13.61 million per person ($27.22 million for married couples).4

However, these changes will not last. Unless Congress takes action to extend it, the 2017 tax provision is due to expire at the end of 2025. That means that in 2026, the lifetime exemption will be about one-half of what it was the year before.5

You may want to plan now and consider using exemptions so that you are not caught in what could be a rush to take exemptions in 2025. If you wish to reduce your estate for estate tax purposes, for example, you might want to consider making gifts that use your lifetime exemption before the lifetime exemption decreases after 2025. This would potentially remove from your estate any future appreciation on the money or property that you give away and allow you to take advantage of the current higher exemption.7

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Planning for potential tax law changes

UBS Advanced Planning Senior Wealth Strategist Joanna Morrison sits down with Shiavon Chatman to discuss insights from the 2024 Planning Guide.

Dan Cassidy

planning-guide

Advanced Planning Podcast: 2024 Planning Guide Podcast

10:18

Advanced Planning Senior Wealth Strategist, Joanna Morrison, sits down with Shiavon Chatman to discuss meaningful insights from this year’s guide including income tax deductions, the upcoming sunset of increased estate planning exemption amounts and more.

Gifting using trusts

When making gifts that use your lifetime exemption, you might want to consider making gifts into an irrevocable trust, either for the benefit of your spouse and descendants or just your descendants.8

Using a trust may offer important advantages. A trust can potentially insulate trust property from the claims of a beneficiary’s creditors (including a spouse or former spouse), and it can potentially keep the trust property out of a beneficiary’s estate for estate tax purposes. A trust, however, requires proper administration, which involves some time and expense.

Bunching charitable gifts

After the enactment of the TCJA, many individuals do not have sufficient itemized deductions to exceed the standard deduction.12 If you typically make annual charitable gifts but don’t have itemized deductions in excess of the standard deduction, you might consider bunching multiple years of charitable gifts into a single year.

Bunching multiple years of charitable gifts may cause your itemized deductions to exceed the standard deduction and therefore maximize your income tax charitable deduction. You might consider contributing the bunched amount to a donor advised fund so that you can make grants periodically to one or more charities in future years.

Understanding residency versus domicile

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An individual who spends time in multiple states might wish to assess whether they could be treated as a resident in more than one of those states. States have different standards for determining whether someone is a resident, and the standard for income tax purposes sometimes differs from the standard for estate tax purposes.

In some cases, your domicile (where you intend to live indefinitely) is more relevant than your residency (generally where you are physically present). For income tax purposes, residency sometimes is based strictly on physical presence (i.e., a day-count test). Other times, other factors are relevant (e.g., whether the individual rents or owns an apartment, house, or other dwelling in the state). By managing residency—including whether and when to change residency—you potentially can avoid unexpected taxes.

Staying informed

It’s not only the estate and gift tax exemptions that will sunset at the end of 2025 as a result of the TCJA. Several income tax provisions are also scheduled to sunset at the end of 2025.

Although Congress may act to extend some or all of them, it is important to know which provisions are expiring so you can be prepared to maximize your tax savings in case they do sunset as currently scheduled.

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The Advanced Planning Group consists of former practicing estate planning and tax attorneys with extensive private practice experience and diverse areas of specialization, including estate planning strategies, income and transfer tax planning, family office structuring, business succession planning, charitable planning and family governance.

1. Leo Mattersdorf, Letter to the Editor, Time, February 22, 1963.

2. Rev. Proc. 2023-34. This assumes the individual is a US citizen or otherwise a US person for gift and estate tax purposes.

3. IRC § 2010(c)(3)(B). See IRC § 2505(a)(1).

4. IRC §§ 2010(c) and 2502(a). See Rev. Proc. 2023-34. This assumes the individual is a US person for gift and estate tax purposes.

5. Id.

6. Treas. Reg. § 20.2010-1(c).Treas. Regs. §§ 20.2010-1(c)(1) and (c)(2).

7. Treas. Reg. § 25.2503-2(a) (a gift in trust is generally treated as a gift to the beneficiaries of the trust).

8. Treas. Reg. § 25.2702-5(c)(1). More broadly, a settlor might create either a personal residence trust or a qualified personal residence trust, but a qualified personal residence trust generally is more favorable, because it’s more flexible. See Treas. Reg. § 25.2702-5(b)(1). Compare Treas. Reg. § 25.2702-5(c)(1).

9. IRC § 2036(a)(1).

Browse additional articles available from UBS Advanced Planning on topics of interest to ultra high net worth clients and their families.

Purpose of this material.
The information on this page and in the attached document is provided for informational and educational purposes only. It should be used solely for the purposes of discussion with your UBS Financial Advisor and your independent consideration. UBS does not intend this to be fiduciary or best interest investment advice or a recommendation that you take a particular course of action.

No tax or legal advice.
UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your personal tax and/or legal advisors regarding your particular situation.

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