Possible changes in the tax law will give attorneys, CPAs, and financial advisors a lot to talk about with high net-worth clients, especially related to potential changes to the estate tax exemption, which has historically been a hot button. It still needs to be determined whether or not a post-election Congress will take action to prevent the estate tax exemption from sunset at the end of 2025, which would likely affect the way you design your clients' wealth transfer strategies.

Aside from watching and waiting, what can you do? For starters, it is essential to keep charitable planning high on your list of strategies that could help blunt the impact of a lower estate tax exemption if the sunset were to occur. That’s because gifts to charities are deductible from a client’s taxable estate. 

Now is a significant time to remind charitably inclined clients about the benefits of naming a fund at the Tidewater Jewish Foundation (TJF) as the beneficiary of an IRA or other qualified retirement plan, including: 

• Avoid income tax. When your client designates a fund at TJF as the beneficiary of an IRA, the fund receives the assets without having to pay income taxes. This is because charities are tax-exempt entities, allowing them to receive funds from retirement accounts tax-free after your client’s death.
• Estate tax benefits: Naming a charity as a beneficiary of an IRA, like other charitable bequests, results in an estate tax charitable deduction, which reduces any applicable federal estate taxes. This means that the total value of the IRA can flow into your client's fund at TJF without the estate tax hit.
• Easy to update. Clients can revise IRA beneficiary designations anytime during their lifetimes. So, as the end of 2025 draws closer, a client can update an IRA beneficiary designation to name a fund at TJF, which protects against a potential drop in the estate tax exemption. If the sunset does not occur, the client could revise the beneficiary designation to leave a greater portion of retirement plan assets to heirs.
• Strong strategy regardless of estate tax exemption. Even if the estate tax exemption remains high, removing some concern for certain high net-worth clients, remember that the huge income tax hit will still apply to clients’ traditional IRAs if they leave them to their children. That’s why many of your charitable clients will choose to leave their IRAs to their funds at TJF even if the estate tax exemption does not sunset. And, of course, many clients genuinely want to leave a legacy and would love to incorporate charitable giving into their estate plans regardless of what happens with the tax laws.

We are here to help! Please contact the team at the Tidewater Jewish Foundation anytime to explore tax-savvy ways you can help your charitable clients prepare for the uncertain road ahead.

Naomi Limor Sedek, President & CEO, at 757-965-6109 or nsedek@tjfva.org, or Randy Parrish, Vice President & CFO at 757-965-6104 or rparrish@tjfva.org

 

The Tidewater Jewish Foundation (TJF) team is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.