Proposed Legislation Could Affect Planned Giving Strategies

As part of Will Week information package, our Development and Donor Services staff welcomed fund holders and advisors to a special information session with leading estate planning attorney Nic Sasso. At Porter Wright, Nic advises in its estate planning and wealth preservation practice group and is an expert in the areas of estate planning, tax planning, high-net-worth planning, business succession planning, charitable giving, special needs planning, and trust and estate administration.

Guests learned the latest in planned-giving strategies and how they may complement their existing plans. Nic shared further insight with us.

Nic: The presentation covered emerging charitable planning opportunities on the horizon, primarily focusing on proposed changes from the Presidential Green Book and the potential sunset of the 2017 Tax Cuts and Jobs Act (TCJA).  We also addressed various proposals of the Green Book, including required distributions from retirement accounts, a new minimum tax on the wealthiest taxpayers, increased tax rates on high-income individuals, new long-term capital gain treatment, and changes to estate and gift taxes. Finally, the presentation discussed the benefits of charitable giving and planning opportunities considering the potential TCJA sunset.

TPF: What is the significance and potential impact of these proposed acts and legislation?

Nic: For the Green Book

• Required Early Distribution of Retirement Accounts: This proposal mandates early distribution of vested account balances over $10 million, significantly impacting wealthy individuals by accelerating their tax liabilities.
• 25% Minimum Tax on Wealthiest Taxpayers: Imposing this minimum tax on taxpayers with wealth over $100 million aims to ensure that the ultra-wealthy pay their fair share, potentially increasing tax revenues but also impacting investment and spending behaviors among the wealthy.
• Reallocating Income Tax Brackets and Loss of Joint Filing Benefit: Increasing the top marginal income tax rate and reducing benefits for joint filers will likely result in higher taxes for high-income earners, which could affect consumer spending and investment strategies.
• Increased Long-Term Capital Gains Rate: Taxing long-term capital gains at ordinary income rates for income level over $1 million, potentially influencing investment decisions and market behavior.
• Loss of Stepped-Up Basis at Death: Treating transfers of appreciated property as realization events would subject heirs to capital gains taxes upon inheritance, altering estate planning strategies and potentially reducing the wealth transferred across generations.

For the potential sunset of the 2017 TCJA

• If the TCJA sunsets, individual tax rates will revert to higher pre-2017 levels. The standard deduction will be cut in half creating a push for itemizing deductions and potentially more charitable donations. The federal estate tax exemption will also have a 50% decrease, which will likely increase tax liabilities for many families. 

How do you see everything playing out?

Nic: The legislative landscape is poised for significant changes based on the upcoming elections and political dynamics.  If the proposed Green Book changes are enacted, taxpayers, especially high earners, and wealthy individuals, will face increased tax liabilities. The sunset of the TCJA at the end of 2025 will also bring substantial changes, reverting many tax benefits and deductions to previous levels.  This period of transition will require proactive planning and adjustments to financial strategies to help mitigate the impact of such changes.  My best guess is that no legislation will be passed, i.e., nothing from the Green Book will become law and the TCJA will sunset after December 31, 2025.

What is your advice for clients as these events on the horizon become more in focus in the next year or two?

Nic: By staying informed and proactive, clients can effectively manage significant law changes and optimize effective estate planning opportunities in the face of unknown tax law changes.

1. Green Book: Remember, this is NOT law, and it is only a summary of the administration's fiscal priorities and goals for 2024.
2. TCJA Sunset: The 2017 TCJA is likely going away at the end of 2025. Now is the time to meet with your team of advisors and start planning! 
3. Early Planning: Start planning now to be ready for any potential tax law changes. Consider the timing of trust funding, income planning, income deductions, and investment strategies to maximize tax benefits under current laws.
4. Charitable Giving: Utilize available deductions for charitable contributions and explore lifetime charitable gift planning opportunities to optimize tax benefits.
5. Collaboration with Advisors: Work closely with financial, legal, and tax advisors to navigate the complexities of the changing tax landscape and develop tailored strategies to safeguard wealth and ensure compliance.

Disclaimer: 

Porter Wright Morris & Arthur LLP offers this content for informational purposes only, as a service for our clients and friends. The content of this publication is not intended as legal advice for any purpose, and you should not consider it as such. It does not necessarily reflect the views of the firm as to any particular matter or those of its clients. Please consult an attorney for specific advice regarding your particular situation.