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04/02/2025

Scenario Planning for High-Net-Worth Families: Navigating Estate Planning Risks in 2025

In today’s volatile political and economic climate, high-net-worth (HNW) and ultra-high-net-worth (UHNW) families face unique estate planning challenges. The potential sunset of the 2017 Tax Cuts and Jobs Act (TCJA), economic uncertainties, and global trade disruptions demand a proactive, scenario-based approach. Estate planners must act as strategic risk managers to safeguard wealth and optimize tax efficiency for HNW families. This article outlines key risks and tailored strategies to address them.

Critical Risks for HNW Families

1. Sunset of the 2017 Tax Cuts and Jobs Act (2026)

The TCJA doubled the estate and gift tax exemption to $13.99 million per individual (2025, inflation-adjusted), but it is set to revert to approximately $6-7 million in 2026 unless extended. For HNW families with estates exceeding this threshold, the reduction could trigger significant estate tax liabilities, with rates up to 40%.

Impact: Families who fail to act before the sunset may face increased tax burdens, reducing wealth transfers to heirs.

2. Economic Volatility and Recession Risks

Market downturns and a potential recession could erode asset values, affecting estate valuations and liquidity. HNW families with concentrated holdings in stocks, real estate, or businesses are particularly vulnerable.

Impact: Declining valuations may offer tax planning opportunities but also strain liquidity for tax obligations or family needs.

3. Global Trade and Tariff Uncertainties

Rising tariffs and supply chain disruptions, driven by shifting trade policies, could impact HNW families with international businesses or investment portfolios. These factors may depress business valuations or complicate cross-border wealth transfers.

Impact: Families with global assets face increased complexity in tax compliance and succession planning.

Strategic Risk Management for HNW Families

Estate planners can employ a broad-based approach for addressing risk. Below are targeted strategies for HNW families:

1. Maximizing the TCJA Exemption

Strategies:

  • Lifetime Gifting: Utilize the current $13.99 million exemption by making substantial gifts before 2026. For example, transferring assets to heirs or trusts now locks in the higher exemption, avoiding future tax hikes.
  • Grantor-Retained Annuity Trusts (GRATs): Transfer appreciating assets to heirs with minimal gift tax, retaining income for the grantor.
  • Spousal Lifetime Access Trusts (SLATs): Gift assets to a trust for a spouse, preserving access to funds while removing them from the taxable estate.
  • Dynasty Trusts: Establish multi-generational trusts to shield wealth from estate taxes for decades, leveraging the high exemption.

Example: An HNW couple with a $50 million estate gifts $27.98 million (combined exemptions) into a dynasty trust before 2026, avoiding millions in potential estate taxes if the exemption drops.

2. Navigating Economic Volatility

Strategies:

  • Valuation Discounts: Transfer assets during market downturns to reduce gift or estate tax exposure. For example, closely held businesses or real estate may qualify for discounts due to lack of marketability or minority interests.
  • Flexible Trust Structures: Incorporate powers of appointment or disclaimer trusts to adapt to changing economic conditions or family needs.
  • Liquidity Planning: Maintain cash reserves or life insurance in trusts to cover estate taxes or family expenses during market slumps.

Example: A family with $15 million in stock holdings that are expected to increase in value over the long term. They transfer shares during a 20% market dip.  The market value is “frozen” at $12 million for this part of the transaction. By taking advantage of the market correction, an additional $3 million of estate tax exemption can be used for further planning.

3. Mitigating Global Trade Risks

Strategies:

  • Diversification: Spread investments across asset classes and jurisdictions to hedge against tariff-driven market shocks.
  • Foreign Entities: Understand the impact of foreign situses to maintain a stable operating environment while ensuring compliance with IRS reporting.
  • Business Succession Planning: Restructure global family businesses into trusts or holding companies to streamline succession and minimize tax exposure amid trade policy shifts.

Example: A family with a $50 million international manufacturing business establishes a foreign trust to hold overseas assets, shielding them from U.S. estate taxes and tariff-related valuation drops.

Implementing Broad-Based Planning

HNW families benefit from the issue and action-oriented framework:

  • Monitor tax legislation, economic indicators, and trade policies. For instance, track Congressional debates on TCJA extensions or tariff announcements.
  • Model and stress test scenarios, such as a TCJA sunset increasing taxes by 20% or a recession halving business valuations.
  • Envision outcomes, like a $10 million tax bill versus a tax-free transfer or the payment of capital gains vs estate taxes, to align with family goals.
  • Select strategies (e.g., SLATs or valuation discounts) based on risk tolerance and wealth objectives.
  • Execute plans promptly, such as funding trusts in 2025, while building flexibility to adjust to new developments.

Conclusion

For HNW families, 2025 presents a critical window to address estate planning risks. The TCJA sunset, economic volatility, and global trade uncertainties threaten wealth preservation, but strategic scenario planning can mitigate these challenges. By leveraging lifetime gifting, flexible trusts, valuation discounts, and offshore structures, estate planners can secure tax efficiency and long-term financial stability for HNW families. Proactive action now ensures wealth transfers align with family goals, regardless of future uncertainties.

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