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The close presidential race has sparked a surge in tax planning among ultra-wealthy investors, particularly due to concerns about a potential increase in estate taxes. The looming expiration of a generous estate tax provision next year has become a pressing issue as the possibility of a divided government or a Democratic president grows. Currently, individuals can transfer up to $13.61 million (for couples, up to $27.22 million) to family members without incurring estate or gift taxes. However, this benefit is set to expire at the end of 2025, potentially cutting the exemption in half. Wealthy individuals could then only gift around $6 million to $7 million individually, and $12 million to $14 million for couples, with a 40% transfer tax applying to any amount above that.

With the uncertainty surrounding the election results, many affluent Americans had previously adopted a wait-and-see approach, anticipating a potential extension of the 2017 tax cuts under a Republican sweep. Vice President Kamala Harris, on the other hand, has proposed higher taxes for those earning more than $400,000. The current neck-and-neck competition between Harris and former President Donald Trump has heightened the chances of the estate tax benefits expiring, either due to gridlock or tax hikes.

This sense of urgency has prompted wealthy families to consider making significant gifts before any potential changes to the estate tax laws. The impending expiration of the exemption is expected to accelerate estate planning decisions and impact the transfer of trillions of dollars from older to younger generations in the future. Advisors emphasize the importance of balancing tax-driven decisions with family dynamics, ensuring that large gifts align with both financial and emotional considerations.

For families planning to leverage the current estate tax window, swift action is crucial. The process of drafting and filing transfers can be time-consuming, and delays could lead to missed opportunities or complications with the IRS. Advisors caution against rushing into decisions without thorough planning and suggest structuring gifts strategically to minimize risks and ensure a smooth transfer of wealth.

While tax proposals such as higher capital gains and corporate taxes are also on the radar of wealthy clients, the sunset of the estate tax exemption remains the most pressing issue. Inquiries regarding estate planning strategies have surged in recent weeks, with more individuals now taking steps to implement their wealth-planning initiatives in light of potential tax changes.

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