February 12, 2025

As 2025 begins, clients and advisors should be proactively planning to optimize their wealth strategies. With potential tax changes, the sunsetting of certain exemptions, and evolving regulations, staying ahead of these shifts is crucial. Below are five key strategies to consider for wealth preservation and tax efficiency in 2025.

1. Utilizing Spousal Lifetime Access Trusts (SLATs) Before the Sunset

The current estate and gift tax exemptions are set to sunset at the end of 2025, likely reducing the exemption amount from approximately $14 million per person to around $7 million. To take full advantage of the current limits, high-net-worth individuals should consider funding SLATs for their spouses.

A SLAT allows one spouse to transfer assets into an irrevocable trust for the benefit of the other, removing those assets from the taxable estate while still providing indirect access to the funds. This strategy is particularly effective for those who wish to lock in today’s historically high exemption amounts before they are reduced.

Key Considerations:

• Ensure the SLAT is properly structured to avoid the reciprocal trust doctrine.
• Fund the trust with separate property rather than community property to avoid IRS challenges.
• Work with legal and tax advisors to ensure proper gift tax reporting.

2. Roth Conversions for Long-Term Tax Benefits

Roth conversions remain a powerful tool for wealth transfer planning. With income tax rates likely to rise in the future, converting traditional IRAs to Roth IRAs in 2025 can lock in lower tax rates and provide tax-free growth for heirs.

Why It Matters:

• A Roth conversion allows for tax-free withdrawals in retirement.
• It eliminates required minimum distributions (RMDs), preserving wealth for heirs.
• For estates exceeding the federal exemption threshold, Roth conversions can reduce overall taxable assets and estate tax liability.

Action Steps:

• Assess your tax bracket and potential future tax increases.
• Evaluate the impact of paying taxes now versus later.
• Consider partial conversions over multiple years to minimize tax impact.

3. Leveraging Installment Sales and Private Annuities

For business owners or those with highly appreciated assets, installment sales and private annuities provide a structured way to transfer wealth while maintaining cash flow.

Installment Sales: Selling assets to an irrevocable trust or family members in exchange for installment payments spreads out capital gains tax over time, reducing the immediate tax impact.

Private Annuities: A private annuity allows an individual to transfer assets in exchange for a lifetime income stream. This can provide liquidity while removing appreciating assets from the taxable estate.

Best Practices:

• Structure sales and annuities properly to avoid IRS scrutiny under Section 2036.
• Ensure sufficient cash flow for retirement needs.
• Use actuarial calculations to optimize tax benefits.

4. Estate Tax Portability and Gift Tax Planning

If a spouse passes away, their unused estate tax exemption can be transferred to the surviving spouse through portability. Filing an estate tax return (Form 706) is essential to claim this benefit.

Why Portability Matters:

• It preserves the deceased spouse’s exemption for the surviving spouse.
• Helps families maximize their estate tax exemptions over time.

Additionally, advisors should ensure that clients properly allocate their Generation-Skipping Transfer (GST) exemption to dynasty trusts to protect wealth for future generations.

Steps to Take:

• File Form 706 within nine months of the first spouse’s death.
• Review estate planning documents to ensure proper tax elections are made.
• Discuss GST exemption strategies with clients who wish to create multi-generational trusts.

5. Addressing the Corporate Transparency Act (CTA) and Compliance Concerns

With the nationwide injunction on the Corporate Transparency Act (CTA) creating uncertainty, clients should continue to prepare for compliance requirements while monitoring legal developments.

Key Actions:

• Gather required entity ownership information, but avoid premature filings unless legally necessary.
• Stay updated on court rulings and potential legislative changes.
• Work with legal advisors to ensure business structures comply with reporting obligations.

Final Thoughts

2025 presents a unique window for proactive wealth planning. With tax laws in flux, clients and advisors must take a strategic approach to maximize exemptions, utilize tax-efficient structures, and preserve wealth for future generations. Whether through SLATs, Roth conversions, installment sales, or estate tax portability, thoughtful planning today can yield significant benefits for tomorrow.

Advisors should engage with clients early in the year to discuss these opportunities and implement customized solutions based on their individual financial landscapes.

If you would like expert guidance on implementing these strategies and ensuring your long-term financial success, reach out to the team at Omni 360 Advisors today.

Our professionals are here to help you navigate the complexities of tax, legal & wealth planning and make informed decisions for the future.