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DEAR TRUST OFFICER:
What’s going to happen to the federal estate tax? I heard it might be repealed this year?—OPTIMISTIC AND WEALTHY
DEAR OPTIMISTIC:
The amount exempt from federal estate tax for deaths occurring this year is $13.99 million per person. The exemption could go one of three ways.
First, if Congress takes no action the amount exempt will fall to about $7 million per person next year. This is because when the exemption was increased in 2017 it came with an expiration date, to meet Congressional budget rules.
Second, as you may have heard, there is considerable support among Republicans and many Democrats for repealing the federal estate tax entirely. A bill to this effect was introduced by Senate Majority Leader John Thune earlier this year. The federal gift tax would be retained, so as to limit intra-family transfers to lower income tax burdens. The amount of federal estate tax revenue collected is so small that some feel it is not worth the expense of compliance and enforcement. According to the IRS statistics, in 2022 (most recent data available) there were only 3,170 taxable estate tax returns.
Finally, the “One Big Beautiful Bill” that passed the House in May and is now before the Senate would increase the estate tax exemption permanently to $15 million and keep inflation adjustments for future years. This change seems more likely than complete repeal.
Many estate planners welcome the prospect of a permanent increase in the exemption, because it would create greater certainty for estate planning strategies. Complete repeal, on the other hand, could have surprising negative effects on existing estate plans, which a simple exemption increase would not.
For example, a two-trust estate plan for a married couple might fund a bypass trust with the formula “the amount exempt from federal tax,” leaving the balance of the estate to a marital deduction trust. Such a plan would incur no federal estate tax at the first death of a spouse, while maximizing the amount that passes tax-free at the surviving spouse’s death. What happens under that formula if the federal estate tax is repealed? Potentially, everything would go to the bypass trust, and nothing would pass to the marital deduction trust! Probably not what the testator had in mind.
We should have greater clarity about the future of the federal estate tax later this summer.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
From The Wall Street Journal:
From the Investment Company Institute’s 2025 Fact Book:
From The 2024 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds:
All in all, a passing grade, but more needs to be done. One can never have too much savings for retirement.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
The “One Big Beautiful Bill” passed by the House, now before the Senate, includes a novel new provision to subsidize the purchase of certain automobiles. It’s a long way to adoption of this new tax loophole, and the final version could be different. Tax Notes analyzed the change as passed by the House [“A Closer Look at Car Loan Interest Relief,” June 2, 2025].
Interest on car loans was an itemized deduction until passage of the Tax Reform Act of 1986, which offset its lower rate schedule by removing or limiting various deductions. The new House bill takes a different approach, making the interest component of certain car loans an adjustment to gross income (“above the line”) rather than a deduction. Hence, the benefit is available whether or not the taxpayer takes the standard deduction. Only about 10% of taxpayers itemize their deductions, and they tend to be at the high end of the income scale. Designing this treatment of auto loan interest an adjustment instead of a deduction means the tax benefit will be available to far more taxpayers. However, higher-income taxpayers are excluded—the full tax benefit is phased out for singles with adjusted gross income from $100,000 to $150,000, and for marrieds filing jointly from $200,000 to $250,000.
The Federal Reserve Bank of New York reported that total auto loans outstanding in the first quarter of this year came to $1.64 trillion. Equifax reported that in 2023 there were 22.8 million auto loan originations, with a total value of $681 billion. A lot of money is on the table. It’s estimated that Americans bought 16 million cars, SUVs, and light trucks in 2024, and roughly half of them had their final assembly done in the United States, as required by the new law to qualify for the new tax benefit. Interestingly, the tax benefit is also available for acquisition of a used car, if it meets the “made in the USA” requirement. However, only interest on loans that originated after January 1 of this year would be eligible.
As a practical matter, how much money is at stake in this new provision, what is the dollar value of the benefit? Tax Notes provides an example of a married couple buying a $60,000 new car with a 10% down payment. The first-year interest on the $54,000 loan, assuming a 6% interest rate for six years, would come to $3,030.30. An adjusted gross income of $135,000 would put the couple in the 22% tax bracket, which means that the new adjustment would save them $666.67 when they file their Form 1040. The benefit declines each year, as monthly payments have larger principal and smaller interest components as time goes by.
As a marketing matter, would the prospect of saving $666.67 on a $60,000 purchase cause someone to buy an American-made car instead of an import? Time will tell, but the financial incentive seems weak in the decision process. On the other hand, the Congressional Budget Office projected that the revenue loss from the new provision would be $58 billion over the four years it will be in effect. That implies that about 20 million taxpayers will get an average tax benefit of $900 each.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
Thoughtful planning may create a lasting legacy.
As has been noted often, the wealthy want their heirs to have enough to be able to do anything, but not so much that they don’t have to do something. Now more than ever, a family fortune is something to be protected and nurtured.
What is the answer? How can wealth be conserved and deployed on a long-term basis for the benefit of heirs? Trusts could be the answer, for many families.
Trust planning comes immediately to mind when planning for a surviving spouse or an heir who is a minor. With a trust one gets professional investment management guided by fiduciary principles. But what about when the children are fully grown, established in their careers and financially mature, in their 30s or even 40s? Even then, trust-based planning will be an excellent idea for many affluent families.
Trust advantages
Among the key benefits that can be built into a trust-based wealth management plan:
Professional investment management. A significant securities portfolio is a wonderful thing to have, but it requires serious care and attention, especially in times of economic and tax uncertainties. How can adequate income be provided to beneficiaries without putting capital at risk? What is the best balance between stocks and bonds?
Creditor protection. One of the most frequent questions that we hear is, “How can I keep my money and property out of the hands of my son-in-law (or, sometimes, my daughter-in-law)?” Answer: Use a trust to own and manage the property, and give your heir the beneficial interest in the trust instead of the property. A carefully designed trust plan can protect assets in divorce proceedings, as well as protect from improvident financial decisions by inexperienced beneficiaries.
Future flexibility. Parents typically have a fuzzy definition for treating their children “equally.” As each child is unique, his or her needs may need financial support that is out of proportion to that of siblings. By utilizing a trust for wealth management, one may give a trustee a similar level of discretion, permitting “equal treatment” on something other than gross dollar terms. The trust document may identify the goals of the trust and provide standards for measuring how well the goals are being met for each of the beneficiaries.
We specialize in trusteeship and estate settlement. We are advocates for trust-based wealth management planning. If you would like a “second opinion” about your estate planning, if you have questions about how trusts work and whether a trust might be right for you, we’re the ones you should turn to. We’ll be happy to tell you more.
Trusts for children
Support trust. For an adult child who needs a permanent source of financial support, with the trust principal protected from the claims of creditors, a support trust may provide a solution. The beneficiary’s interest is limited to just so much of the income as is needed for his or her support, education and maintenance.
Discretionary trust. The trustee has sole discretion over what to do with the income and principal, just as the grantor does before the trust is created. The beneficiary has no interest in the trust that can be pledged or transferred. When there are multiple beneficiaries, the trustee may weigh the needs of each in deciding how much trust income to distribute or reinvest, when to make principal distributions, and who should receive them. The trust document often will include guidelines on such matters.
Gift-to-minors trust. For young children, contributions of up to $19,000 per year to this sort of trust will avoid gift taxes. Assets may be used for any purpose, including education funding, and will be counted as the child’s assets for financial aid purposes. The assets of a gifts-to-minors trust must be made fully available to the child when he or she reaches age 21. However, the child may be given the option of leaving the assets in further trust.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
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