As the dust settles on the 2024 presidential election, the re-election of Donald Trump marks a continuation of policies that could have significant implications for estate planning. For residents of Minneapolis and across Minnesota, understanding these potential changes is crucial to ensure that your estate strategy remains robust and optimized for the coming years.

Potential Policy Directions Under Trump

Given the past focus of Trump’s administration on tax reduction and business-friendly policies, here are some areas we anticipate could impact trust and estate planning:

Preservation or Increase of Estate and Gift Tax Exemptions

During Trump’s first term, the Tax Cuts and Jobs Act (TCJA) of 2017 nearly doubled the estate and gift tax exemption. In 2023, this exemption stands at $12.92 million per individual ($25.84 million for married couples). Under a renewed Trump administration, there’s a possibility that these exemptions will remain high or even increase, providing an extended window of opportunity for wealthy individuals to transfer assets tax-free.

For high-net-worth Minnesotans, this continuation presents a significant advantage. If you haven’t yet capitalized on the high exemptions, now might be the time to act. Leveraging strategies like lifetime gifting, funding trusts, or passing on appreciating assets to your heirs could lock in these benefits before any potential future changes.

Continuation of Step-Up in Basis

The step-up in basis rule, which adjusts the value of inherited assets to their market value at the time of the original owner’s death, has been a cornerstone of estate planning. It significantly reduces the capital gains taxes your heirs would owe when they eventually sell those assets. Under Trump, the preservation of this favorable tax rule is likely.

This stability in tax law could simplify the planning process for families who own real estate, family businesses, or significant investment portfolios. It means your heirs would likely inherit these assets with minimal tax burdens, making it easier to retain family wealth across generations.

Continuation of Step-Up in Basis

Tax reduction was a hallmark of Trump’s previous administration, and we may see efforts to cut taxes further. For estate planning, this could mean lower income and capital gains tax rates, which would favor individuals who engage in strategic asset transfers or trust distributions.

However, while tax cuts may reduce overall tax burdens, it’s essential to consider how such policies might impact federal revenue and, in turn, future tax law adjustments. An economic shift could bring unforeseen changes that we’ll need to monitor.

What Does This Mean for Estate Planning in Minnesota?

Minnesotans have additional considerations, given our state’s separate estate tax with an exemption of only $3 million. Even if federal exemptions remain high, many local residents may still find their estates subject to Minnesota’s estate tax. Here’s how you can prepare:

Review Your Estate Plan for State Tax Implication

Ensure your estate planning strategies account for Minnesota’s estate tax, which could apply to a broader range of estates compared to federal taxes. Trusts, charitable giving, and strategic asset placement may help mitigate these state tax liabilities.

Consider Lifetime Gifting Strategies

With the potential continuation of high federal gift tax exemptions, you have a significant opportunity to reduce the size of your taxable estate. Gifting assets to heirs or setting up irrevocable trusts can help you transfer wealth efficiently, especially if your estate approaches Minnesota’s lower exemption threshold.

Evaluate Asset Appreciation and Transfers

For families with substantial real estate or business interests, it’s worth considering mechanisms to transfer appreciating assets to the next generation now. Grantor Retained Annuity Trusts (GRATs) or Family Limited Partnerships (FLPs) may be valuable tools to lock in current valuations and minimize future tax exposure.

Planning for Uncertainty

While Trump’s re-election may bring a continuation of favorable estate tax policies, it’s important to remember that tax laws can be unpredictable. Even with a generally pro-taxpayer administration, economic or political pressures could result in adjustments down the road. It’s wise to remain flexible and prepared to adapt your estate plan as circumstances change.

Take Action Now

Regardless of political shifts, the best estate planning strategy is one that is proactive and tailored to your unique financial situation. Here’s what you can do today:

  • Meet with Your Estate Planning Attorney: Discuss how the current political landscape affects your plans and whether there are actions you should take while exemptions are high.
  • Stay Informed on Legislative Developments: Estate and tax laws are often in flux. Keep up with news and policy updates, or subscribe to our firm’s newsletter for the latest insights.
  • Utilize This Window of Opportunity: If you have significant assets, consider taking advantage of favorable tax laws now. It’s better to be ahead of the curve than to scramble when changes come.

Final Thoughts

While the political landscape can be unpredictable, having a clear, adaptable estate plan gives you peace of mind. As your trusted estate planning advisor in Minneapolis, I’m committed to helping you navigate these changes and safeguard your family’s financial future.

Stay tuned for updates, and don’t hesitate to email me at karlen@omnuslaw.com to schedule a consultation to discuss your estate plan. Together, we’ll make sure your legacy is protected.