Trump 2.0: Estate and Gift Tax: Current & Future Landscape

Case Study #1: Estate Tax Savings for a Single Massachusetts Resident with a $6 Million Estate

Imagine you are single with a $6 million estate in Massachusetts. At first glance, you may assume nothing can be done to avoid state estate taxes. However, strategic planning can help reduce liabilities:

• Fund an Irrevocable Gift (and Grow) Trust—Massachusetts does not have a gift tax, and assets inside the trust grow outside of your taxable estate.
• Invest in out-of-state real estate – Massachusetts does not tax property held in other states.
• Leverage Life Insurance Trusts – Using an ILIT, life insurance proceeds can be passed on tax-free.
  • All premiums are paid into the trust free of a gift tax.
  • All proceeds are free of estate and income tax.

By implementing these strategies, you can substantially reduce your estate’s tax burden.

Case Study #2: Estate Tax Savings for A Married Massachusetts Couple with a $6 Million Estate

A married couple with a $6 million estate faces different challenges because Massachusetts does not allow spouses to “share” their $2 million exemptions.

• Protect the 1st $2 million exemption with a Protection Trust Plan, offered by our firm. This saves $200,000 in estate taxes in the 10% bracket and possibly more with growth inside the trust.
• Fund an Irrevocable Gift (and Grow) Spousal or Inheritance Trust to transfer money, securities, business or real estate using annual exclusion gifts or even larger gifts (for which no gift tax will be paid under the generous lifetime exclusion from gift tax of $15mm – assuming the tax bill proposed gets adopted).
• Consider an Irrevocable Life Insurance Trust (ILIT) to transfer wealth that is free of estate taxes.
• Purchase out-of-state real estate in a state that does not have an estate tax.

Case Study #3: A High-Net-Worth Couple Facing Both Income and Estate Tax Challenges

Joe and Jane, a married couple in Massachusetts, have an estate worth $19 million. They own a $2 million vacation home, are active stock market investors, and run a profitable business. They have 3 children and 7 grandchildren—a total of 10 potential beneficiaries.

Their investments and business have historically grown at 7% annually, and their financial advisors project their estate could double in value by retirement age and double again by the time of their death.

While they are not currently subject to federal estate tax, their projected estate growth means they will likely exceed the federal exemption in the future. If the estate tax exemption drops in 2026, they could become immediately taxable at 40% federally, and Massachusetts’ estate tax could take a 16% cut of the first $15 million.

Their Estate Planning Goals:

• Minimize federal and Massachusetts estate taxes to pass more wealth to do good things
• Ensure financial security for their children and grandchildren
• Preserve the family vacation home as a legacy asset
• Incorporate charitable giving as part of their estate plan

Five Steps to Achieve Their Estate Planning Goals:

1. Reduce Taxable Estate Value with Strategic Gifting
   • Make annual exclusion gifts at $380,000 per year  ($19,000 (2025 exclusion amount) × 10 beneficiaries × 2 (Joe and Jane)). This excludes $7.6 million over 20 years before considering investment growth. With 7% annual growth, the actual amount removed could be closer to $15 million, saving $6+ million in future estate taxes.
   • Use a Gift (and Grow) Spousal Lifetime Access Trusts (SLAT) for a one-time lump sum gift to an irrevocable trust. which locks in today’s higher tax exemption. Gift any substantial amount, say $5 million in trust in 2025 (current lifetime exemption per person). These trust assets grow outside their estate, avoiding future taxation.
   • Using Spousal Lifetime Access Trusts (SLAT) – for the benefit of the surviving spouse and heirs. This allows them to reduce their taxable estate while retaining direct access to funds. It shields assets from estate tax, creditors, and divorce claims and takes advantage of discounted valuations if they transfer minority shares in their business.
   • Consider a Qualified Personal Residence Trust (QPRT) for their Vacation Home. This allows them to gift the home at a discounted present value, locking in lower gift tax exposure. They can continue to live in the home for a set number of years before it passes to their heirs. This prevents the home from appreciating within their taxable estate – if it doubles to $4 million, this saves $1.6 million in estate tax. Up to two residences can be given in a QPRT.
   • Make a gift of profitable business interests in a Grantor Retained Annuity Trust (GRAT) – the asset should be one that appreciates faster than the applicable federal rate of interest (AFR).
   • Create a Family LLC to transfer assets at discounted valuations without using up exemption amounts. The Family LLC gives them management control over the business while transferring wealth tax-efficiently.
2. Optimize Charitable Giving to Reduce Estate Tax Liability
   Joe and Jane have options for charitable giving:
   • Charitable Remainder UniTrust (CRUT) – this allows them to receive lifetime income while securing an immediate charitable deduction, reduce their taxable estate and avoid capital gains tax on transferred assets, and provides future support to charities aligned with their values.
   • Donor Advised Fund gift in their estate – This is useful if they plan to leave a portion of their estate to charity while allowing their family to manage how it is distributed.
3. Use Life Insurance for Tax-Free Wealth Transfer
   Joe and Jane should seriously consider investing in a second-to-die life insurance policy within an Irrevocable Life Insurance Trust (ILIT) to:
   • Cover estate tax obligations without selling assets
   • Ensure a tax-free payout to heirs at the second spouse’s death
   • Lock in favorable life insurance rates now, before aging increases costs
4. Address Long-Term Growth & Future Tax Exposure
   Even after strategic gifting and trust planning, Joe and Jane’s estate may still be valued at $30 million or more at death. If the federal exemption is cut in half, their estate will face a 40% federal estate tax on amounts above the exemption. To address this, they can use:
   • Business and real estate valuation discounts to lower the taxable value of transferred assets. If they transfer business shares worth $10 million, valuation discounts could reduce the taxable value to $7 million, lowering estate tax exposure.
   • Income Tax Strategies for Trusts
     • Moving irrevocable trusts to New Hampshire eliminates state-level taxation on trust income.
     • If their trust assets earn $4 million annually, avoiding Massachusetts’ 5% tax could save over $200,000 per year—or $2+ million over a decade.

The Outcome for Joe & Jane

Before Planning:

• Estate valued at $19 million, with projected growth to $38–76 million over time
• A projected federal estate tax liability of at least $1.7 million if the exemption decreases
• Exposure to Massachusetts estate tax of up to 16%

After Planning:

• $15-30 million removed from their taxable estate through gifts and trust transfers
• Vacation home excluded from taxable estate growth through a QPRT, saving $1.6 million in estate tax
• Family LLC & valuation discounts reduce taxable estate value
• Charitable Trusts reduce taxable assets while providing income
• ILIT ensures tax-free wealth transfer after they’re both gone

Goal achieved: Millions more in wealth transferred to do more good for their family and causes.