Is Your Estate Plan Ready for 2025?

Talk about a possible third version of the SECURE Act, elimination of Social Security taxes and a host of other potential changes combined with rules and regulations already set to take effect in 2025 adds a lot of complexity to estate planning for the coming year, says a recent article from Think Advisor, “7 Big Unknowns That Could Shake Up Retirement Planning.”

Possible changes to the SECURE Act. The Setting Every Community Up for Retirement Enhancement was initially passed in 2019, followed by SECURE Act 2.0 in 2022. Both made many changes to retirement and estate plan rules. One former Labor Department official has said a third version is beginning to form.  However, details are sketchy. Republicans in Congress are expected to be eyeing tax cuts. However, reducing government revenue may be problematic.

Historically high estate tax exemptions. The high estate tax exemption created by the 2017 Tax Cuts and Jobs Act may be extended. However, the exact path forward for federal budget negotiations and tax reform is riddled with many unknowns. Can a “core TJCA extension” occur, while avoiding a filibuster in the Senate? Stay tuned.

Social Security taxes. Some states tax Social Security benefits. Campaign promises to eliminate taxes on Social Security may be a bit harder to implement than the extension of federal estate tax exemptions. It would have to be done through stand-alone legislation requiring Democratic support. It is possible, yes, but not certain.

Possible elimination of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). The House passed the Social Security Fairness Act on November 12 by a wide margin. The Senate may act in the coming lame-duck session to do away with these two policies, which reduce Social Security benefits for government workers. As of this writing, the Senate version of the bill is still in committee, so the legislation will probably need to be reintroduced in 2025.

Will the Full Retirement Age (FRA) be lifted for Social Security? Depending on who you ask, the insolvency date for Social Security is 2033 or 2034. Increasing the FRA from 67 to 68 or 69 could increase funding. According to the Congressional Budget Office, this change is expected to reduce annual yearly benefits by about 13% for people who fall into this older FRA category. Experts think this may not happen in the next Congress but expect to see a change to the FRA in 2025 or 2026.

Changes to ERISA. Two rulings from federal courts in Texas temporarily halted a new fiduciary rule under the Employee Retirement Income Security Act. The rule seeks to minimize conflicts of interest when financial advisors work with clients on tax-qualified retirement accounts. It was set to take effect on September 23. However, it is now in limbo. Until a Labor Secretary is appointed, it will be hard to determine when the ruling will be reinstated.

Roth accounts. Whether more tax revenue will be needed because of estate tax extensions is followed by transforming more retirement accounts from tax-deferred to Roth-style, where taxes are paid when the assets go into the account. Forcing taxpayers to save for retirement on an after-tax basis could help with collecting tax revenue.

Regardless of these and more changes, an estate plan is still the best means of protecting your family and yourself, managing tax liabilities and preparing for the future.

Estate planning for 2025 requires careful consideration of potential regulatory changes and their impact on your future. At The Werner Law Firm, our experienced team stays informed on evolving laws, ensuring your estate plan is equipped to handle new challenges and opportunities. Let us help you protect your family and secure your legacy.

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Reference: Think Advisor (Nov. 26, 2024) “7 Big Unknowns That Could Shake Up Retirement Planning”