How looming tax law change could affect ultra-high-net-worth

HNW and UHNW clients are increasingly seeking more estate planning services. However, it’s also an area that’s currently underserved in the market, as Aaron White, chief growth officer and wealth advisor at Adero Partners, an independent RIA in California, attests.

But it’s also one area that’s starting to get a lot of attention because of an upcoming tax law change.

“The 2017 Tax Cuts and Jobs Act sunsets [in 2025] along with the lifetime exemption that gets reduced to 50 percent unless there's an extension,” he says. “A lot is up in the air this year with the election. The election and the estate planning tax law change is certainly top of mind for a lot of our clients.”

This is why Adero is taking a “wait and see” approach until the end of the year, when the results of the election will be determined. “That may give us a bit more clarity on which way it's going to go, depending on who's in office,” White noted.

Although it went relatively unnoticed at the time, one provision of the landmark Tax Cuts and Jobs Act of 2017 has had a profound impact on many people who may have a taxable estate in the future. The law more than doubled the maximum that families can give their beneficiaries, either during their lifetime or as part of their estate, without incurring federal gift or estate taxes.

It’s important to note the amount is also indexed for inflation. For 2024, a single taxpayer can claim a federal estate and lifetime gift tax exemption of $13.61 million. Couples making joint gifts can double that amount.

This exemption has helped affluent families pass along substantial gifts tax-free. But time is running out for most taxpayers as it remains in effect only through the end of 2025. After that, amounts are scheduled to return to 2017 levels in 2026. Adjusted for inflation, the single taxpayer limit would drop back to an estimated $7 million.

“A lot of our clients are in that $10 to $30 million range and it’s really interesting because some need the money to live on,” he admits. “If they're young, you don't exactly know how their lifestyle is going to change. You don't want to give away too much, but they might work again. The more time you have in financial planning, the more variables you have and it's harder to predict.”

White noted this is partly why the firm has been cautious with transferring wealth and giving away too much, especially for their clients who are in their 40s and might have little children. For those who are in that segment or who are on the fence with their taxable estate, it’s “just being patient and wait and see.”

Whereas clients who are in the retirement age and are pushing north of $30 or $40 million, Adero is being a bit more thoughtful around using the exemption for at least one spouse.

But as White says, it depends on where the clients want their money to go. Some will either spend it, give it to family, give it to charity, or die with it and pay the estate and gift tax.

“We always say you want to disinherit Uncle Sam and try to focus on the first three buckets,” says White jokingly. “That seems to resonate pretty well with clients.”

Adero is always focused on estate planning and working around the clock to come up with the different structures that they think makes sense, identifying the right assets “and coming up with the overall financial plan. We’re also working with outside law firms to do legal agreements and the drafting, since we're not licensed as attorneys or licensed as a law firm to do that,” highlighted White.

As a holistic-centric firm, this allows them to be one step closer to provide more on the planning side, along with “having that in-house expertise with a law background as opposed to a general planning background,” White added. “We think that's going to be a differentiator.”

Part of that differentiator is utilizing Wealth.com’s services. The fintech platform allows advisors to create estate planning documents, trusts, wills, advanced medical directives and Power of Attorneys. It also provides an existing analysis of plans that were done previously along with several visualization tools that can help clients understand what they have in their portfolios.

“We feel it's a good savings to utilize technology. We're involved in the process and helping [clients] get everything done,” White said.

Name: Aaron White
Position: Chief growth officer and wealth advisor
Company: Adero Partners
Founded: 1999
AUM: Approximately $4 billion