Ep. 89 How to Plan for the Looming Estate Tax Issue
The Tax Cuts and Jobs Act (TCJA) significantly increased estate and gift tax exemptions, offering relief for high-net-worth families. However, with the law set to sunset on December 31, 2025, the exemption will be cut in half—exposing many more estates to a 40% tax rate on assets above the threshold.
In this episode of Live Life Liberated, Kyle Malmstrom, Managing Director, and Christopher Hyman, Director of Insurance Solutions, break down what’s changing and how to plan ahead to protect your wealth.
The Estate Tax Exemption: What’s Changing?
A Brief History of the Estate Tax
The federal estate tax has been in place since 1916, with 14 major changes to exemption levels and tax rates over time. Under the TCJA:
- The individual estate tax exemption doubled from $6 million to over $12 million
- For married couples, the exemption rose to $26 million in 2023
- If no changes are made, the exemption will drop back to around $6-7 million per person in 2026
“Many families who had no estate tax concerns before will now find themselves facing a massive tax bill.” – Christopher Hyman
The Estate Tax Sunset: Who Will Be Affected?
If you have a net worth above $13 million as a married couple (or $6.75 million individually) in 2026, your estate could be taxed at 40% upon your passing.
“We were just one vote away from a proposal to drop the exemption even further—to $3.5 million per person. This issue is not going away.” – Kyle Malmstrom
Why Liquidity Planning is Critical
Many high-net-worth individuals hold illiquid assets such as:
- Businesses
- Real estate portfolios
- Alternative investments
- Collectibles or private equity holdings
The estate tax must be paid within nine months of death. If your wealth is tied up in a business or real estate, your heirs may be forced to sell assets at an inopportune time just to cover the tax bill.
“Imagine needing to sell real estate in 2009 at rock-bottom prices just to pay estate taxes—that’s what we want to avoid.” – Kyle Malmstrom
Three Ways to Transfer Wealth
When planning for estate taxes, assets can go to:
- Heirs (family, friends, etc.)
- Charity
- The government (via estate taxes)
“Most families want their wealth to go to their heirs or a cause they believe in—not the IRS.” – Christopher Hyman
Estate Tax Strategies: What You Can Do Now
1. Squeeze, Freeze, and Burn Strategy
One widely used estate planning approach includes:
- Squeeze: Reduce the valuation of assets through discounting techniques
- Freeze: Transfer assets to trusts or other structures to cap their taxable value
- Burn: Use income tax strategies to further reduce estate size over time
This method helps minimize estate tax liability but requires early and careful structuring.
2. The Role of an Irrevocable Life Insurance Trust (ILIT)
For many high-net-worth families, a properly structured life insurance policy inside an ILIT is one of the most effective tools to:
- Create liquidity upon death (tax-free cash to cover estate taxes)
- Avoid forced asset sales
- Provide flexibility for business owners and real estate investors
“Life insurance provides immediate, tax-free liquidity right when you need it most.” – Christopher Hyman
Why Expert Guidance Matters
Estate planning is complex—especially when navigating trust structures, business ownership, and tax law changes. Working with specialists who understand both estate planning and life insurance is key to building a strategy that:
- Preserves control over assets
- Minimizes tax exposure
- Ensures a seamless wealth transfer
“Our firm specializes in integrating life insurance into estate plans in a way that maximizes flexibility and minimizes costs.” – Kyle Malmstrom
Final Thoughts: Take Action Now
If you wait until late 2025, finding an estate planning attorney who isn’t fully booked will be a challenge. Now is the time to assess your estate tax exposure and explore proven strategies to protect your wealth.
To discuss your estate planning options, contact Kyle Malmstrom at [email protected] or Christopher Hyman at [email protected].
Disclaimer
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Centura Wealth Advisory. The content has been made available for informational and educational purposes only. The content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Centura Wealth Advisory (Centura) is an SEC-registered investment advisor with its principal place of business in San Diego, California. Centura and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC-registered investment advisors in which Centura maintains clients. Centura may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Past performance is no guarantee of future results. Tax relief varies based on client circumstances, and all clients do not achieve the same results.
