As we near the end of 2024, this is the perfect time to reexamine your tax and estate planning action items. There are plenty to address, and it’s wise to do so sooner rather than later. In reviewing year-end estate planning or business transition plans, there are many worthwhile considerations, ranging from year-end gift giving to tax issues.

Below is a list of items you might want to evaluate as you prepare for year’s end and future planning. If you need assistance with gifts or charitable giving, estate planning, income tax, or other opportunities ,‎ and might wish to speak with an attorney, we encourage you to reach out to Schwabe’s Tax and Estate Planning professionals. In addition, our Privately Held Businesses & Enterprise team may be able to assist with business transition plans.

Year-End Gift Giving
Estate Planning
Year-End Charitable Giving
Year-End Planning For Income Tax Issues
Business Transition Planning
Corporate Transparency Act

Year-End Gift Giving

Federal gift tax exemptions are at an all-time high. These are use-it-or-lose-it items that have year-end implications. Now is also the time to take advantage of valuation discounts that are available to closely held business interests. Assets to study for 2024 gifting include:

• Marketable securities
• Business interests, which include outright gifting and the use of family businesses and other entities to remove future appreciation from taxable estates. These entities currently qualify for valuation discounts, which offer great opportunities to leverage estate and gift tax exemptions. These valuation discounts could be at risk if certain tax adjustments occur. See Schwabe’s Op-Ed: Potential Tax Changes May Increase Cost of Passing Family Businesses.
• Charitable gifts
• Appreciated long-term capital assets

Keep in mind that it takes time to select, analyze, and plan for lifetime gifts, especially substantial lifetime ones, so the sooner you start the process of planning, the better. For more on creating a legacy through lifetime gifting, see Commentary: Creating a Legacy Through Lifetime Gifting, published by Capital Press. An early start is especially critical if you are thinking about gifts that must be made by year’s end.

Please also keep in mind as we approach 2025 that the historically high federal estate and gift tax exemption is set to sunset at the end next year if Congress does not extend it. In 2017, the federal estate and gift tax exemption was temporarily doubled through the end of 2025. If no legislative change occurs between now and 2026, the federal estate and gift tax exemption will drop to half the level in place a year from now, to about $7 million. The amount is not precise, because the exemption adjusts for inflation. If you are interested in discussing gifting or other strategies that can be used to take advantage of the elevated federal estate and gift tax exemption, please let us know.

Estate Planning

Year-end estate planning entails several potential concerns, from estate and gift-tax planning rollbacks to potential tax reform, as well as whether your current estate plan could use a tune-up.

• Estate and Gift Tax Exemption Rollbacks: The current federal estate and gift-tax exemption amount for 2024 is $13.61 million per person. This exemption is temporary, and, absent legislative change, will roll back in 2026 to the level set by prior federal law. After the rollback, the exemption will be $5 million in 2012 dollars, adjusted for inflation—likely less than half the current maximum.
• Gifts: Given the expected reduction in the estate and gift-tax exemption, we encourage you to confer with your estate planning attorney and other financial advisors to discuss whether a lifetime gift makes sense for your family. Don’t wait; the window for making large gifts may be closing, and most gifting strategies take time to implement!
• Check Your Plan: The end of the year is always a good time to review your estate plan and ponder whether it should be revised. For more, see When to Tune Up Your Estate Plan and Four Critical Steps to Estate Planning During Uncertain Times. For business owners, this type of planning is especially worthwhile. See Succession Planning vs. Estate Planning—Why They Are Both Important. Be careful when using free or online resources for estate planning; see Push Pause Prior to Signing “Free” Legal Documents.
• Evaluate your kids’ planning: If you have a child who is now over 18, think about what type of estate planning documents she or he may need. See The Grad Pack: Estate Planning for Newly Minted Adults.
• People who own natural-resource property that’s essential for their farming, forestry, or fishing business may benefit from a new Oregon estate-tax exemption. Families in these industries should review their estate and business succession plans to determine whether this exemption might benefit them. For more, see Oregon’s New Estate Tax Exemption for Family Businesses Engaged in Farming, Forestry, or Fishing Business.

Year-End Charitable Giving

There are many opportunities to make substantial charitable gifts that reduce taxes. If you plan to make charitable gifts before year’s end, consider our Tips for Planning Charitable Giving.

Year-End Planning For Income Tax Issues

Due to the uncertainty of future tax situations, before 2025 individuals and business owners should discuss with tax and estate planning professionals the timing and effect of possible changes to:

• Individual income tax rates—state and federal
• Carryback losses
• Basis or cost
• C corporation losses
• Corporate income tax rates—state and federal
• 1031 Exchanges
• Capital gain rates
• Suspension of required minimum distributions for qualified retirement plan accounts

Business Transition Planning

The balance of 2024 and 2025 will provide strong opportunities to plan for, and in some cases execute, a business transition. The mergers and acquisition market has improved slowly but steadily throughout this year. However, many companies, particularly in the middle market, still face a challenging deal environment subject to persistently high interest rates, regulatory scrutiny, political shifts, and geopolitical instability. Businesses that have a strong financial position or offer unique market opportunities remain attractive for both strategic and financial buyers, and can command premium values. Private equity interests have substantial un-invested capital and are actively pursuing add-on acquisitions—which present an exit pathway for a growing number of business owners. Owners that have taken a “wait and see” approach to transitions the past few years may be growing impatient. Uncertainty about the possible expiration of tax cuts in 2025, and unknowns related to the election cycle and governmental policies, may accelerate the timeframe for some sellers, and delay them for others.

Buyers continue to place a greater focus on due diligence, though due-diligence periods have generally compressed since 2023. Sellers who are prepared to withstand extensive due diligence are more likely to close successful transactions. Taxes often exert pressure on transactions and require analysis from the perspective of the company, the owners personally, and the buyer. The structure of the transaction may depend heavily on the tax implications, including income, state, and estate taxes. Advance planning, including estate and gift planning, is critical.

We have seen increasing numbers of succession plans that involve transition to key employees. These plans can be attractive when trusted key employees have an interest in—and are qualified to assume—an ownership role. They present an opportunity to keep the business within the employee “family” and to preserve the owners’ legacy. Sellers with the flexibility and appetite to finance these transitions are in a good position for success. Such plans are more difficult, however, where seller financing is not desired and the buyers lack the financial means to purchase. With advanced planning, opportunities for creative structures can mitigate these challenges. In all cases, companies armed with a written transition plan are better prepared to seize attractive third-party opportunities when they arise, and are more likely to achieve successful internal transitions. For more details, please visit the Schwabe Privately Held Businesses & Enterprises page.

Corporate Transparency Act

The Corporate Transparency Act went into effect January 1, 2024, and will requires most small businesses and entities, including LLCs, limited partnerships, and corporations, to file information about the entity and its “beneficial owners” with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  For entities that were created prior to 2024, the deadline for filing the required information is no later than December 31, 2024. For entities formed during 2024, the deadline for filing such information is 90 days after formation.  The Act includes specific definitions and requirements, including that certain people who do not actually own an interest in a business may still be required to provide their information to FinCEN. Now is the time to analyze whether the CTA applies and what steps a business should take to ensure compliance. Businesses should consult with a lawyer of their choosing regarding those important issues. For more, see Corporate Transparency Act: Reporting Beneficial Ownership Starting January 2024.

Conclusion

To understand the full spectrum of proactive legal measures you might pursue for estate planning and business succession, we encourage you to reach out to Schwabe’s Tax and Estate Planning professionals or Privately Held Businesses & Enterprises team.

This article summarizes aspects of the law and opinions that are solely those of the author. This article does not constitute legal advice. For legal advice that applies to ‎your situation, you should contact an attorney.