The Tax Cuts and Jobs Act (TCJA) was introduced and passed by Congress in 2017, but was only made effective for years 2018-2025. As a result, several of the provisions and rules financial professionals have become comfortable with will expire at the end of 2025.
Below, you will see some of the provisions that are set to expire as well as some possible solutions for clients.
Many high net-worth clients are using their lifetime exemption to complete transfers through gifting and capital management strategies. These clients may need help reducing their estate for estate tax calculations and they need to complete these strategies before the end of 2025.
The change to the lifetime exemption means we need to start planning for clients who would not be subject to the federal estate tax currently but could be in 2026.
A single individual with a $10 million dollar net-worth today doesn’t worry about this tax. In 2026, that same estate could be subject to tax on values in excess of approximately $6.8 million – the lifetime exemption of $5 million in 2017, adjusted for inflation.
High net-worth clients subject to these higher estate taxes may want to consider Spousal Limited Access Trusts (SLATs), Irrevocable Life Insurance Trusts (ILITs) or our Wait-and-See strategies. These strategies offer clients flexibility while the life insurance is owned outside of the estate, preventing the death benefit from being subject to income or estate taxes.
In addition, lower standard deduction may incentivize more clients to consider charitable planning. Financial professionals should familiarize themselves with ideas like charitable remainder trusts, private foundations and donor advised funds.
This is a hypothetical example for illustrative purposes only.
Having a tax strategy is especially important for high net-worth clients as we approach 2026. To start preparing, now may be a good time to talk with clients about our Life Insurance as a Financial Tool (LIFT) program that offers tax strategies, such as pre-funding retirement taxes, pre-paying beneficiary taxes and leaving a tax efficient legacy. In addition, clients may want to consider completing Roth conversions so they can take advantage of today’s lower tax brackets.
This is a hypothetical example for illustrative purposes only.
Business owners should begin thinking about a corporate tax strategy if they haven’t started already. In 2026, qualified business income deduction will be eliminated, but the flat corporate tax of 21% will remain. With these changes, there may be an increase in corporate conversions to C-Corp. In addition, pass-through companies will need tax approaches in the form of deductions. These changes may also generate greater interest in qualified plans for the pass-through company to generate deductions.
Policy loans and withdrawals may create an adverse tax result in the event of lapse or policy surrender and will reduce both the surrender value and death benefit. Withdrawals may be subject to taxation within the first fifteen years of the contract. Clients should consult their tax advisor when considering taking a policy loan or withdrawal.
This information may contain a general discussion of the relevant federal tax laws. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.
These are general marketing materials and, accordingly, should not be considered investment advice or a recommendation that any particular product or feature is appropriate or suitable for any particular individual. These materials are based on hypothetical scenarios and are not designed for any particular individual or group of individuals (for example, any demographic group by age or occupation). The materials were prepared for financial professionals who are experienced in investment and/or insurance matters. As a result, they should not be reviewed or relied on by any other persons. Securian Financial Group, and its subsidiaries, have a financial interest in the sale of their products.
For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it is accessible to the general public.
DOFU 9-2024
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