Families intending to pass wealth down to the next generation could be heavily impacted by the results of the November elections as the Trump-era tax cuts face expiration.
The Tax Cuts and Jobs Act (TCJA), enacted in 2017, is set to expire Dec. 31, 2025, and the legislation’s renewal largely depends on which party gains control of the White House and Senate this fall. Under the current TCJA, the top individual tax rate dropped to 37% from 39.6%.
If the tax cuts expire, "that means wealthy families who are now able to give to the next generation almost $28 million, they'll be cut in half,” Jeff Fishman of JSF Financial told Crain Currency. “So now couples will only be able to leave $14 million.
"You’ve got wealthy people who are like 'Wait a second: We're going to lose the ability to give $14 million tax-free to our kids and grandkids — what do we do? How do we plan for that?' So that's one major issue.”
Fishman founded Los Angeles-based JSF Financial in 1996 and manages about $2.5 billion in assets for high-net-worth clients in Hollywood. JSF recently launched a philanthropic entity to advise wealthy clients on strategy around planned giving. The amount that families are inclined to give back to charities figures to be affected by tax policies hinging on November’s election.
“New York and California have high state taxes," Fishman said. "It used to be you could deduct them against your federal taxes, but you no longer can unless the current tax law rolls off the books and the SALT deduction returns. So there’s a lot riding on the election from pure tax planning and overall asset and estate planning. All eyes, at least in our world, are on what happens in November, and then we'll have a year arguably to really try to plan hard.”
2010 was the last year that the federal government eliminated an estate tax, also known as a “death tax.” Currently, the Internal Revenue Service exempts from the tax estates of less than $13.61 million, while those above that threshold face tax rates between 18% and 40%.
Several states, including New York and Connecticut, also levy their own estate taxes.
If the Democrats win November’s election, Fishman expects high-net-worth families to pass down their assets before the expiration of the Trump tax cuts at the end of 2025.
“I think you’re going to have wealthy families go ahead and give all $28 million worth of assets to the next generation now,” he said. “So it could be real estate, it could be marketable securities, or we’re gonna give you our house right now, a beach house. They'll do whatever they can to shift assets out of their estate because anything above that [estate exemption] is taxed at 40%."