While no federal tax legislation will likely be enacted this year, “there are a variety of methods” advisors can use to help clients take advantage of the “historically high” estate tax exemption, according to Andrew Katzenberg, a partner for ArentFox Schiff’s offices in New York City and Washington.
The latest move regarding the estate tax came from Rep. Bob Latta, R-Ohio, when he reintroduced on Jan. 13 legislation to permanently repeal the estate tax and retain the stepped-up basis at death.
“It’s unlikely this legislation will pass either both [chambers] of Congress or a presidential veto,” Katzenberg said. “The exemption currently stands at $12,920,000 per person [for 2023], so a couple would have almost a $26M exemption. This makes any type of repeal hard to sell as necessary to the general public or a majority of Congress.”
Various states have also proposed bills that seek to lower estate tax thresholds and raise taxes on the wealthy.
We caught up with Katzenberg — who focuses on wealth transfer planning and preservation, multigenerational planning, estate and trust administration, nonprofit and tax-exempt organizations, and charitable giving — to discuss what advisors should watch out for this year.
His clients include high-net-worth individuals, hedge fund and private equity managers, business owners, art dealers and athletes.
THINKADVISOR: What is the No. 1 estate planning issue advisors should prepare for this year?
ANDREW KATZENBERG: Since the Republicans took control of the House, it is unlikely there will be any tax legislation affecting clients in 2023. However, the economic downtown may make clients very concerned about their current positions and reluctant to do more planning.
Helping clients see the forest through the trees here will be very important for advisors as this is actually an opportunity to move assets with lower values outside their taxable estates.
The basic idea [of] buy low sell high … applies to estate planning when using your exemption. You want to use assets with lower values and high growth potential to maximize the exemption you use. Using an asset with a deflated value (but expectation of rising back up again) is an excellent strategy.