Episode 11: OB3's Impact on Estate Planning & Wealth Strategy

This week on Tackling Tax, we’ll explore the OB3’s impact on estate planning and wealth strategy.

Episode Transcript

(00:00):
On this episode, we'lllook into the impact of OB3 on estate
planning and wealth strategy,including the changes to the estate
and gift tax exemption and what they meanfor their succession planning.
We're joined by Troy Farmer,the managing director
of Forvis Mazars’ wealth strategy team.
From your one stop for taxupdates and analysis, I'm Iris.

(00:22):
And I'm Devin.
It's Tuesday, September 30th,and this is Tackling Tax.

(00:49):
Before we get startedwith our much anticipated guest,
we always start our showwith the four stories of the week
that we thinkmight be most impactful to you.
So let's jump right in to our FastFour stories of the week.
Just for context,we are recording this on September 26th,
at which point no continuing resolutiondeal has been struck

(01:12):
and we are all anxiously waiting
to see how the processof funding the government will unfold.
So, even though the House was able to passa concurring resolution
with a 217 to 212 vote,we were met with gridlock in the Senate.
With the September 30th deadline looming,
Congress returns from recess on the 29th.

(01:33):
So, yes,senators are really under pressure
here to get something togetherto avoid a government shutdown.
So, what's the holdup?
The Republican proposed version of the CR
failed with a 44 to 48
vote, largelydue to two Republican senators voting no
and absent of eight senators from the votealtogether.

(01:56):
Democrats are holding out for a CRthat includes
further considerations for healthcare,like the premium tax credit.
Even so, their proposed version of the CRalso failed.
So what's it going to taketo get something passed here?
Well, we're kind of in a game of chickenat the moment.
Honestly, Devin, Republicanshave even told House members that

(02:17):
they don't need to returnuntil after the September 30th deadline.
So, a play ultimately targetedto pressure Democrats into accepting
the Republican version, or be blamedultimately for forcing the shutdown.
The U.S.-Mexico-Canada Trade Agreement,or the USMCA for short,
must undergo review every six yearsbased on the terms of the deal.

(02:40):
Well, next year is the next review year.
And depending on the climate at the time,it could prove to be
an interesting exercise.
Now, in anticipation of the review,Canadian Prime Minister Mark Carney
and Mexican President ClaudiaSheinbaum Pardo
met in Mexico City on the topic of tradeand their working relationship.

(03:01):
Now, note that the U.S.
trade rep has launcheda period of public comment
ending on November 3rd, and then a hearingwill occur on November 17th.
The case against President Trumpand the reciprocal tariffs under
IEPA will continue to be heardin the Supreme Court on November 5th.
Iris, didI hear that you are going to the hearing?
Well, I'm not sure yet,

(03:21):
but I have entered the lottery,so fingers crossed that works out.
If so, we'll be bringing you a veryspecial edition of Tackling Tax from D.C.
on that day.
Well, fingersand toes crossed in that case.
Near and dear to my heart,
we've got a comp and ben related storythat brings us home for these Fast Four.
Now, proposed regulations were released,

(03:42):
accompanying the new tipsdeduction made available by OB3.
Now, these regulations listqualified occupations and this list
basically mirrors the preliminary listthat came out earlier this year.
And goes on to further clarifyhow they determine what that list is.
It additionally defineswhat qualified tips are.
First, it specifies they must be cash based.

(04:03):
So this is going to include things
like credit cards, gift cards,casino chips if it's gambling related.
But it's not going to includelike digital assets,
meals, or even event tickets.
Note that tips from a tip pool qualify
additionally,so that will cover like a chef or a cook.
Someonewho may not historically receive tips,
but if they do receive them, a partof that, they're still qualified tips.

(04:26):
Another important point to make hereis that like service
charges, automatic gratuities,and other automatic amounts.
Basically,if the customer does not have the,
you know, the discretionon how much they want to tip,
then it's not going to be considereda qualified tip.
So that automatic, you know, 20%
tip for large parties at a restaurant,does that qualify?

(04:49):
It does not unless it's just suggested.
Or, let's say that the individual decidesthey have the 20% required,
but they want to,they ultimately tip 25%, an additional 5%.
That additional amount
will still be considered a qualified tipbecause that was not required.
That was voluntary.
So, is there anything elsethe regs didn't address?

(05:11):
Well, one little thing on the definitionis we still don't know
about allocated tips.
I'm not going to get into that,but that is something I'd like
some guidance on.
The bigger issue for meis what to do in 2025.
So we know we got a form W2 for 2026,but we still do not have any transition
guidance for 2025on what employers are supposed to do.

(05:33):
Are they requiredto remit anything to the IRS?
How are theysupposed to give it to the employees?
Are they even required to?
There's a lot of questions on this,and I think that's probably
the biggest issuethat we need guidance on right now.
Super interesting.
Well, stick with us, y'all,
as we transition to the main portionof our episode, Planning Insights.

(06:00):
On today's segment of Planning Insights,we're joined by Troy Farmer,
the managing director of ForvisMazars’ Wealth Strategy team to talk about
the primary ways that OB3 has impactedwealth planning strategies.
Welcome to Tackling Tax, Troy.
Thank you Devin.
Well Troy, to start, would you mind maybejust giving our audience a brief overview
about you and your team and really,
what are you doing at the firm to providethat Unmatched Client Experience?

(06:23):
Sure thing.
So the wealth strategy team here at ForvisMazars concentrates
on helping our clientswith preserving the wealth
they built and transferring that wealth to future generations.
And that can involve, of course,advanced estate planning techniques
and illustrations,but also in the areas of business

(06:45):
succession planning, corporateexecutive compensation
planning, risk management, and modeling,
all of that in financial illustrationsthat allow the client
to see the impact of any estateplanning moves that they might make.
And how might, how is that
considered maybe different than, you know,financial planning, for example?

(07:07):
So, my team, as a good thing to notehere,
my team does not do traditional financialplanning in terms of cash flow planning,
retirement planning, in any regardswith investment management.
My team focuses on the wealth
that you've builtand then how to transfer that wealth.

(07:29):
so instead of the day-to-day or,you know, more of the short term,
you're really focused on that long-termgenerational aspect of this?
That is absolutely a correct statement.
Awesome.
Well, Troy,
as far as I understand with OB3,I think the primary change
that's going to be affectingyour area of practice
would be the estate and gifttax exemption.

(07:50):
Would you mind explaining what is that?
You know, maybe it's a little bitof the history behind it and then what
that change means for you and,you know, your clients moving forward?
Certainly.
On this episode,we'll look into the impact of OB3
on estate planning and wealth strategy,including the changes to the estate
and gift tax exemption and what they meanfor their succession planning.

(08:14):
We're joined by Troy Farmer,the managing director
of Forvis Mazars’ wealth strategy team.
From your one stop for taxupdates and analysis, I'm Iris.
And I'm Devin.
It's Tuesday,September 30th, and this is Tackling Tax.

(08:50):
Before we getstarted with our much anticipated guest,
we always start our showwith the four stories of the week
that we thinkmight be most impactful to you.
So let's jump right in to our FastFour stories of the week.
Just for context,we are recording this on September 26th,
at which point no continuing resolutiondeal has been struck

(09:14):
and we are all anxiously waiting
to see how the processof funding the government will unfold.
So, even though the House was able to passa concurring resolution
with a 217 to 212 vote,we were met with gridlock in the Senate.
With the September 30th deadline looming,
Congress returns from recess on the 29th.

(09:35):
So, yes,senators are really under pressure
here to get something togetherto avoid a government shutdown.
So, what's the holdup?
The Republican proposed version of the CR
failed with a 44 to 48
vote, largelydue to two Republican senators voting no
and absent of eight senators from the votealtogether.

(09:57):
Democrats are holding out for a CRthat includes
further considerations for healthcare,like the premium tax credit.
Even so, their proposed version of the CRalso failed.
So what's it going to taketo get something passed here?
Well, we're kind of in a game of chickenat the moment.
Honestly, Devin, Republicanshave even told House members that

(10:19):
they don't need to returnuntil after the September 30th deadline.
So, a play ultimately targetedto pressure Democrats into accepting
the Republican version, or be blamedultimately for forcing the shutdown.
The U.S.-Mexico-Canada Trade Agreement,or the USMCA for short,
must undergo review every six yearsbased on the terms of the deal.

(10:42):
Well, next year is the next review year.
And depending on the climate at the time,it could prove to be
an interesting exercise.
Now, in anticipation of the review,Canadian Prime Minister Mark Carney
and Mexican President ClaudiaSheinbaum Pardo
met in Mexico City on the topic of tradeand their working relationship.

(11:02):
Now, note that the U.S.
trade rep has launcheda period of public comment
ending on November 3rd, and then a hearingwill occur on November 17th.
The case against President Trumpand the reciprocal tariffs under
IEPA will continue to be heardin the Supreme Court on November 5th.
Iris, didI hear that you are going to the hearing?
Well, I'm not sure yet,

(11:23):
but I have entered the lottery,so fingers crossed that works out.
If so, we'll be bringing you a veryspecial edition of Tackling Tax from D.C.
on that day.
Well, fingersand toes crossed in that case.
Near and dear to my heart,
we've got a comp and ben related storythat brings us home for these Fast Four.
Now, proposed regulations were released,

(11:44):
accompanying the new tipsdeduction made available by OB3.
Now, these regulations listqualified occupations and this list
basically mirrors the preliminary listthat came out earlier this year.
And goes on to further clarifyhow they determine what that list is.
It additionally defineswhat qualified tips are.
First, it specifies they must be cash based.

(12:05):
So this is going to include things
like credit cards, gift cards,casino chips if it's gambling related.
But it's not going to includelike digital assets,
meals, or even event tickets.
Note that tips from a tip pool qualify
additionally,so that will cover like a chef or a cook.
Someonewho may not historically receive tips,
but if they do receive them, a partof that, they're still qualified tips.

(12:28):
Another important point to make hereis that like service
charges, automatic gratuities,and other automatic amounts.
Basically,if the customer does not have the,
you know, the discretionon how much they want to tip,
then it's not going to be considereda qualified tip.
So that automatic, you know, 20%
tip for large parties at a restaurant,does that qualify?

(12:51):
It does not unless it's just suggested.
Or, let's say that the individual decidesthey have the 20% required,
but they want to,they ultimately tip 25%, an additional 5%.
That additional amount
will still be considered a qualified tipbecause that was not required.
That was voluntary.
So, is there anything elsethe regs didn't address?

(13:12):
Well, one little thing on the definitionis we still don't know
about allocated tips.
I'm not going to get into that,but that is something I'd like
some guidance on.
The bigger issue for meis what to do in 2025.
So we know we got a form W2 for 2026,but we still do not have any transition
guidance for 2025on what employers are supposed to do.

(13:35):
Are they requiredto remit anything to the IRS?
How are theysupposed to give it to the employees?
Are they even required to?
There's a lot of questions on this,and I think that's probably
the biggest issuethat we need guidance on right now.
Super interesting.
Well, stick with us, y'all,
as we transition to the main portionof our episode, Planning Insights.

(14:01):
On today's segment of Planning Insights,we're joined by Troy Farmer,
the managing director of ForvisMazars’ Wealth Strategy team to talk about
the primary ways that OB3 has impactedwealth planning strategies.
Welcome to Tackling Tax, Troy.
Thank you Devin.
Well Troy, to start, would you mind maybejust giving our audience a brief overview
about you and your team and really,
what are you doing at the firm to providethat Unmatched Client Experience?

(14:25):
Sure thing.
So the wealth strategy team here at ForvisMazars concentrates
on helping our clientswith preserving the wealth
they built and transferring that wealth to future generations.
And that can involve, of course,advanced estate planning techniques
and illustrations,but also in the areas of business

(14:46):
succession planning, corporateexecutive compensation
planning, risk management, and modeling,
all of that in financial illustrationsthat allow the client
to see the impact of any estateplanning moves that they might make.
And how might, how is that
considered maybe different than, you know,financial planning, for example?

(15:09):
So, my team, as a good thing to notehere,
my team does not do traditional financialplanning in terms of cash flow planning,
retirement planning, in any regardswith investment management.
My team focuses on the wealththat you've built
and then how to transfer that wealth.

(15:30):
Okay, so instead of the day-to-day or,you know, more of the short term,
you're really focused on that long-termgenerational aspect of this?
That is absolutely a correct statement.
Awesome.
Well, Troy,
as far as I understand with OB3,I think the primary change
that's going to be affectingyour area of practice
would be the estate and gifttax exemption.

(15:53):
Would you mind explaining what is that?
You know, maybe it's a little bitof the history behind it and then what
that change means for you and,you know, your clients moving forward?
Certainly.
So, what the estate and gifttax exemption does,
is it allows any individual to transfer
so much of their assets at their death

(16:15):
without incurring anyestate tax on those assets.
So, currently
that exemption sits at $13.99million per person.
So, let's call it $14 million.
$14 million per person or $28 million
per married couplethat could be transferred

(16:36):
to future generations without incurringany estate tax at that 40% rate.
Prior to the One Big Beautiful Bill Act,
that exemption level was scheduled
to reduceby basically half at the end of 2025.
So, my team has been focused over the pastfew years on making sure

(16:59):
that that exemption at those levelswas being used
because it wasa use-it-or-lose-it proposition.
But the One Big BeautifulBill changed that
and that exemption
drop, or sunset as we called it,
will not be occurring at the end of 2025.

(17:20):
And those exemptions are now, quoteunquote, “permanent”
until possibly changed in the futureby a different administration.
But we are no longerin a rushed situation
of use-it-or-lose-it by the end of 2025.
Do you think that uncertainty of knowingthat it could be changed by a future

(17:41):
administration, is that somethingthat's really considered at all,
or is there some confidencethat things will stick at that 15 million?
I believe that there is some
confidence that exemption will,
let's say, remain levelat that $15 million-plus,

(18:02):
then being in the futureadjusted by an inflationary amount.
You never know.
It could be some day in the futurewhere one party, i.e., probably
the Democratic Party, gets the Houseand the Senate
and the presidency and changesthat in some way.
But if you look back on historicallyon the estate tax,

(18:24):
since it was enactedway back, I believe, in 1936,
we have never seen the exemptionlevels go down once they've been raised.
So, I believe it would be difficult
to reduce that exemption in the future.
I'm not saying that

(18:44):
a different administrationcouldn't play with the rate of the tax,
but I think it would be hardto drop the exemption.
Well, so we now have this increased and,
you know, permanentexemption moving forward.
How's that really changing your strategyon what you're telling clients
and how is that impacting maybe whatyou've been doing over the last few years?

(19:06):
So, first of all, let me say that
it reduces a lot of stressby trying to make sure
clients get their planning doneby the end of 2025.
So, frankly,it's allowing us a little more time
to be deeply analyticalabout the best moves to make

(19:29):
without that pressureof the use-it-or-lose-it by December 2025.
The other, maybe more surprising thingabout this legislation
than the eliminationof the sunset of the exemption,
is the fact that for the exemption amount,instead of
just raising by an inflationary amountnext year in 2026,

(19:54):
they actually raised the exemptionall the way up to $15 million.
So, even though those clientswho had used their exemption,
now you have another million dollars
that they could look at doingsome planning with.
And, you know, eliminatingmore from the estate tax base.

(20:15):
So, all in all,what it has done with that quote
unquote “permanency” is it allows us to
not rush clients
through making decisionsand allowing a little more time
to be analytical about the best estateplanning moves to make.

(20:38):
But it also reinforces that,you know, it's a continual process.
You don't do an estate plan,put it away, and it's done because, i.e.,
tax law changeswill have an inflationary amount
after 2026every year to consider how to use.
So, it is reinforcing the message

(21:01):
that estate planning is fluid,wealth transfer planning is fluid.
It is not a one-and-done exercise
and it needs to be continuously nuanced.
One of the things that's importantfor our team, in stressing to our clients
when we're working withthem, is, yes, we do want to

(21:21):
get that estate tax efficiency
and reduce that potential estatetax liability as much as possible.
But that's not how we initially framethe conversation.
And the initial conversation is really
what are the client'sgoals with their wealth?
What do they want their wealthto accomplish for themselves?
What do they want that wealthto accomplish for their children?

(21:45):
How do we protect that wealthin the future?
So, it is not an exercise where we goin and say, you need to do this,
this, this and this to reduce your estatetax liability as much as possible.
It is an exercise of understandingwhat the clients want to accomplish
and then figuring out which wealthtransfer technique or which estate plan

(22:10):
will really drivethe results to those goals that they set.
Now, I understand that
the estate and gifttax exemption is not the only exemption,
but there's also a generationskipping transfer exemption.
Can you maybe explain what that isand what the impact would have been
from any changes from OB3 on that front?

(22:31):
Certainly.
So, the generation skipping tax exemption,I explain it
is it's a parallel tax to the estate tax.
And what the generation skippingtax exemption does, is it allows you,
a client, to transfer assets
to a generation two down from their level.

(22:55):
In other words, a parent,instead of giving assets to their child,
gives their assets to their grandchildrenor future descendants.
That allows the assets
to passwithout being taxed at each generation.
Years ago, a lot of very,very uber wealthy clients

(23:16):
were, you know, giving their assetsthree and four generations down.
And, as you know, escaping the estate taxat every generation.
Thus, Congress instituted
this generation skipping tax,which says, you can do that, but
you can only do that at an exemption levelthe same as the estate tax.

(23:39):
So, you can give away, a married couplecould, let's say,
give away$30 million during their lifetime.
But that $30 million is alsothe limitation
on how much they can give to generationsmore than two away.
Well, thanks for drawing the distinctionbetween the two.
I don't think I ever really understoodthat.
Now, is it correct to say that, arguably

(24:02):
one of the most beneficial estate planningrules is the step up in basis rules?
Yes. So, estateplanning is definitely more
than just considering the estatetax liability potential.
As you may be aware,
any assets held by a personin their estate when they die

(24:25):
get a step up in basis to the fair
marketvalue of that asset on the date of death.
So, estate planning also does
include what I will call income taxbasis planning.
When you give when you give an asset awayduring your lifetime,
whatever your basis in that assetis follows to the recipient.

(24:50):
So, if you had $1 millionasset that you only had
$100,000 of
basis in, and you give that to your child
as $1 million gift,
if that child sells that asset,they're going to incur the capital gain
because their basis will only be $100,000,

(25:14):
just as it was your basiswhen you gave it away.
However, if that asset was in
the client's estate when they passed away
and their child inherited it at that timeand it was worth
$2 million then,then the child's basis becomes $2 million.
So when we are looking at estateplanning techniques

(25:36):
where we're giving away assets,we certainly consider
what is the basis in the assetsthat we're looking
at to fund an estate planning technique,to make sure
that we are getting incometax efficiencies within our estate plan.
So, I will give you an example.
I have a client that holdsstock in a company,

(26:01):
a well-known company that his grandfatherwas one of the founders.
And so, he has inherited the stockand he's held it
for a very long timeand has a very low basis.
He is considering making some major giftsto his child to use his exemption.
But we are looking at assetsother than that stock,

(26:24):
because if he holds that stockuntil he dies and his children receive it,
then they'll get a step-up in basisto today's value at the date of his death.
No, thank you for that example.
That definitely helps me understandthat concept a little bit better.
And it also sounds like many ofthe provisions in OB3 have been favorable
for wealth strategy.

(26:45):
Are there any new taxesor any other changes
that may be more restrictiveon what you're having to do?
I have not yet determinedthat anything is more restrictive.
I would say, for my wealth strategy team,
OB3 has been really

(27:05):
a positive impact on our business
because we are able now, with the
what should be permanencyin the exemption, able
to advise clients more
clearly and illustrate more clearlywhat an impact of giving away

(27:25):
assets to use that exemption today
means to their personal picturegoing forward.
Now, as I understand,there's also an annual gift tax
that I'm sure many of your clientshave to take into consideration.
That's probably somethingyou're also planning around.
Is that still around?
Have there been any changes?
What's that annual amountcurrently set at?
Yes. So, the annual exclusion,how the annual exclusion works

(27:49):
is that any personcan give to any other person,
currently $19,000 a year,
completely gift and estate tax-free.
So, that means I could give my brother,
my sister,my mother $19,000 a year and it would have
no impact, would use no exemptions, usenone of that,

(28:14):
you know, $14 going to be $15 millionlifetime exemption.
It is not income taxable to the recipientis a gift free and clear of taxes.
So, one of the first things we doto every client
when we're looking at establishinga wealth strategy is taking advantage
of that annual exclusion gift,because it is the most

(28:38):
and the front line of protectionagainst the gift and estate tax.
So, we typically include
an annual exclusion gifting program in
just about every wealth strategy planthat we help a client develop.
And does that $19,000

(28:59):
per gift per year, is that
set against, then, your lifetimeexclusion?
No, it does not count against thatlifetime exclusion.
So, that is one reasonwhy we consider that probably
the frontline and most efficient giftand estate tax technique there is.

(29:21):
Because you could give away, you know,
if a grandparent has two childrenand ten grandchildren,
you know, that's 12 people
that can receive $19,000 every yearout of the estate,
has no gift and estate tax impact,and does not use up

(29:43):
any of that grandfather'slifetime exemption.
What about any new reporting requirements,any other changes that you can think of
from what you might have to do fromlike a compliance standpoint under OB3?
No, I do not believe there's any changesin reporting and compliance for OB3
from a gift and estate tax perspectiveor generation skipping tax perspective.

(30:05):
However, one thingI would just state to remind everyone:
the gift and estatetax exemption for a married couple,
is quote unquote “portable.”
So, in other words,if the first spouse to pass away
doesn't use all of the exemption

(30:26):
available to that spouse at their death,
the remaining exemption
is portable to the surviving spouse.
So the surviving spouse at his orher death has their own exemption
plus what they've receivedfrom their deceased husband or wife.
It is important to remember, though,that to maintain

(30:48):
that what we call unusedspousal exemption,
it is necessary to file a Form 706
estatetax return at the first spouse's death,
even if that return would nototherwise be required.
Well, Troy,
this has all beenan incredibly insightful,
and it seems like there's
a lot of opportunity for wealth strategymoving forward because of the OB3.

(31:13):
As we get on the last notes,
are there any initiatives that you andyour team are focusing on moving forward?
Yes.
Our wealth strategy team is developing,we're trying to develop
a couple of what I will callspecialty service offerings.
For some of our particular clients,we are looking at a corporate
executive planning programthat will combine the wealth strategy,

(31:39):
you know, wealth strategyaspects of a corporate executive’s
estate, along with efficient use of
what I call advanced compensationfor executives, how to exercise
stock options, restricted stock units, any stock awards,
and making sure that is all integratedwith the estate plan.

(32:02):
And we're also workingon a potential program
for our business owner clients, a businesstransition advisory services practice,
which would be cross-functional
acrossa lot of lines within Forvis Mazars
such as our ESOP group, our CorporateTax group, our Capital Advisors group,

(32:25):
on advising
a business owneron both his personal wealth strategy
as well as a strategyfor a business succession
or a business exit, and helpingthat business owner determine which
exit strategy or succession
strategy is in that client'sbest interests.

(32:46):
And then our Wealth Strategyteam works a lot
with our Private Client team on familyoffice services,
and we are looking at expanding and
upscaling our practice in that area.
Well, that's all very excitingand hopefully we can have you on again
here soon to maybe explorewhat those are looking like.
I would be happy to do that.

(33:08):
Well, Troy,really appreciate you joining us today.
This was incredibly insightful.
I've personally learned a lot,even though I'm
sure I studied this back in law school.
Maybe worked on itat the beginning of my career.
So, it's always good to continueto learn about
this stuff.

(33:29):
Each episode will bring you what we calla Focused FORsight
of the week, an article or webinarthat might be of interest to you.
This week's Focused FORsight is WNTO'sThird Quarter Update Webinar, aptly
named Q3 2025 update from the WashingtonNational Tax Office.
Join us to discuss recent activitiesin the tax world, strategies from OB3

(33:53):
as well as some insights into whatmight be coming up in tax legislation.
And that's our show.Thank you for joining.
Remember to subscribe and listen infor the next episode of the podcast.
Until next time.
The information set forth
in this podcast contains the analysisand conclusions of the panelists
based upon his, her or their researchand analysis of industry

(34:15):
information and legal authorities.
Such analysis and conclusionsshould not be deemed
opinions or conclusions by Forvis Mazarsor the panelists
as to any individual situationas situations are fact-specific.
The listener should performtheir own analysis and form
their own conclusionsregarding any specific situation.
Further, the panelists’ conclusionsmay be revised without notice,

(34:38):
with or without changesin industry information and legal
authorities.
So, what the estate and gifttax exemption does,

(35:00):
is it allows any individual to transfer
so much of their assets at their death
without incurring any estate taxon those assets.
So, currently that exemption
sits at $13.99 million per person.
So, let's call it $14 million.
$14 million per person or $28 million

(35:24):
per married couplethat could be transferred
to future generations without incurringany estate tax at that 40% rate.
Prior to the One Big Beautiful Bill Act,
that exemption level was scheduled
to reduceby basically half at the end of 2025.

(35:46):
So, my team has been focused over the pastfew years on making sure
that that exemption at those levelswas being used
because it wasa use-it-or-lose-it proposition.
But the One BigBeautiful Bill changed that
and that
exemption drop, or sunset as we called it,

(36:08):
will not be occurring at the end of 2025.
And those exemptions are now, quoteunquote, “permanent”
until possibly changed in the futureby a different administration.
But we are no longerin a rushed situation
of use-it-or-lose-it by the end of 2025.

(36:29):
Do you think that uncertainty of knowingthat it could be changed by a future
administration, is that somethingthat's really considered at all,
or is there some confidencethat things will stick at that 15 million?
I believe that there is some confidence
that exemption will,

(36:49):
let's say, remain levelat that $15 million-plus,
then being in the futureadjusted by an inflationary amount.
You never know.
It could be some day in the futurewhere one party, i.e., probably
the Democratic Party, gets the Houseand the Senate
and the presidency and changesthat in some way.

(37:12):
But if you look back on historicallyon the estate tax,
since it was enactedway back, I believe, in 1936,
we have never seen the exemptionlevels go down once they've been raised.
So, I believe it would be difficult
to reduce that exemption in the future.

(37:34):
I'm not saying that
a different
administration couldn'tplay with the rate of the tax,
but I think it would be hardto drop the exemption.
Well, so we now have this increased and,
you know, permanentexemption moving forward.
How's that really changing your strategyon what you're telling clients
and how is that impacting maybe whatyou've been doing over the last few years?

(37:57):
So, first of all, let me say that
it reduces a lot of stressby trying to make sure
clients get their planning doneby the end of 2025.
So, frankly,it's allowing us a little more time
to be deeply analyticalabout the best moves to make

(38:21):
without that pressureof the use-it-or-lose-it by December 2025.
The other, maybe more surprising thingabout this legislation
than the eliminationof the sunset of the exemption,
is the fact that for the exemption amount,instead of
just raising by an inflationary amountnext year in 2026,

(38:45):
they actually raised the exemptionall the way up to $15 million.
So, even though those clientswho had used their exemption,
now you have another million dollars
that they could look at doingsome planning with.
And, you know, eliminatingmore from the estate tax base.

(39:07):
So, all in all,what it has done with that quote
unquote “permanency” is it allows us to
not rush clients
through making decisionsand allowing a little more time
to be analytical about the best estateplanning moves to make.

(39:30):
But it also reinforces that,you know, it's a continual process.
You don't do an estate plan,put it away, and it's done because, i.e.,
tax law changeswill have an inflationary amount
after 2026every year to consider how to use.
So, it is reinforcing the message

(39:52):
that estate planning is fluid,wealth transfer planning is fluid.
It is not a one-and-done exercise
and it needs to be continuously nuanced.
One of the things that's importantfor our team, in stressing to our clients
when we're working withthem, is, yes, we do want to

(40:13):
get that estate tax efficiency
and reduce that potential estatetax liability as much as possible.
But that's not how we initially framethe conversation.
And the initial conversation is really
what are the client'sgoals with their wealth?
What do they want their wealthto accomplish for themselves?
What do they want that wealthto accomplish for their children?

(40:37):
How do we protect that wealthin the future?
So, it is not an exercise where we goin and say, you need to do this,
this, this and this to reduce your estatetax liability as much as possible.
It is an exercise of understandingwhat the clients want to accomplish
and then figuring out which wealthtransfer technique or which estate plan

(41:02):
will really drivethe results to those goals that they set.
Now, I understand that
the estate and gifttax exemption is not the only exemption,
but there's also a generationskipping transfer exemption.
Can you maybe explain what that isand what the impact would have been
from any changes from OB3 on that front?

(41:22):
Certainly.
So, the generation skipping tax exemption,I explain it
is it's a parallel tax to the estate tax.
And what the generation skippingtax exemption does, is it allows you,
a client, to transfer assets
to a generation two down from their level.

(41:46):
In other words, a parent,instead of giving assets to their child,
gives their assets to their grandchildrenor future descendants.
That allows the assets
to passwithout being taxed at each generation.
Years ago, a lot of very,very uber wealthy clients

(42:08):
were, you know, giving their assetsthree and four generations down.
And, as you know, escaping the estate taxat every generation.
Thus, Congress instituted
this generation skipping tax,which says, you can do that, but
you can only do that at an exemption levelthe same as the estate tax.

(42:30):
So, you can give away, a married couplecould, let's say,
give away$30 million during their lifetime.
But that $30 million is alsothe limitation
on how much they can give to generationsmore than two away.
Well, thanks for drawing the distinctionbetween the two.
I don't think I ever really understoodthat.
Now, is it correct to say that, arguably

(42:54):
one of the most beneficial estate planningrules is the step up in basis rules?
Yes. So, estateplanning is definitely more
than just considering the estatetax liability potential.
As you may be aware,
any assets held by a personin their estate when they die

(43:17):
get a step up in basis to the fair
marketvalue of that asset on the date of death.
So, estate planning also does
include what I will call income taxbasis planning.
When you give when you give an asset awayduring your lifetime,
whatever your basis in that assetis follows to the recipient.

(43:42):
So, if you had $1 millionasset that you only had
$100,000 of
basis in, and you give that to your child
as $1 million gift,
if that child sells that asset,they're going to incur the capital gain
because their basis will only be $100,000,

(44:06):
just as it was your basiswhen you gave it away.
However, if that asset was in
the client's estate when they passed away
and their child inherited it at that timeand it was worth
$2 million then,then the child's basis becomes $2 million.
So when we are looking at estateplanning techniques

(44:27):
where we're giving away assets,we certainly consider
what is the basis in the assetsthat we're looking
at to fund an estate planning technique,to make sure
that we are getting incometax efficiencies within our estate plan.
So, I will give you an example.
I have a client that holdsstock in a company,

(44:53):
a well-known company that his grandfatherwas one of the founders.
And so, he has inherited the stockand he's held it
for a very long timeand has a very low basis.
He is considering making some major giftsto his child to use his exemption.
But we are looking at assetsother than that stock,

(45:15):
because if he holds that stockuntil he dies and his children receive it,
then they'll get a step-up in basisto today's value at the date of his death.
No, thank you for that example.
That definitely helps me understandthat concept a little bit better.
And it also sounds like many ofthe provisions in OB3 have been favorable
for wealth strategy.

(45:36):
Are there any new taxesor any other changes
that may be more restrictiveon what you're having to do?
I have not yet determinedthat anything is more restrictive.
I would say, for my wealth strategy team,
OB3 has been really

(45:57):
a positive impact on our business
because we are able now, with the
what should be permanencyin the exemption, able
to advise clients more
clearly and illustrate more clearlywhat an impact of giving away

(46:17):
assets to use that exemption today
means to their personal picturegoing forward.
Now, as I understand,there's also an annual gift tax
that I'm sure many of your clientshave to take into consideration.
That's probably somethingyou're also planning around.
Is that still around?
Have there been any changes?
What's that annual amountcurrently set at?
Yes. So, the annual exclusion,how the annual exclusion works

(46:41):
is that any personcan give to any other person,
currently $19,000 a year,
completely gift and estate tax-free.
So, that means I could give my brother,
my sister,my mother $19,000 a year and it would have
no impact, would use no exemptions, usenone of that,

(47:05):
you know, $14 going to be $15 millionlifetime exemption.
It is not income taxable to the recipientis a gift free and clear of taxes.
So, one of the first things we doto every client
when we're looking at establishinga wealth strategy is taking advantage
of that annual exclusion gift,because it is the most

(47:30):
and the front line of protectionagainst the gift and estate tax.
So, we typically include
an annual exclusion gifting program in
just about every wealth strategy planthat we help a client develop.
And does that $19,000

(47:51):
per gift per year, is that
set against, then, your lifetimeexclusion?
No, it does not count against thatlifetime exclusion.
So, that is one reasonwhy we consider that probably
the frontline and most efficient giftand estate tax technique there is.

(48:13):
Because you could give away, you know,
if a grandparent has two childrenand ten grandchildren,
you know, that's 12 people
that can receive $19,000 every yearout of the estate,
has no gift and estate tax impact,and does not use up

(48:35):
any of that grandfather'slifetime exemption.
What about any new reporting requirements,any other changes that you can think of
from what you might have to do fromlike a compliance standpoint under OB3?
No, I do not believe there's any changesin reporting and compliance for OB3
from a gift and estate tax perspectiveor generation skipping tax perspective.

(48:57):
However, one thingI would just state to remind everyone:
the gift and estatetax exemption for a married couple,
is quote unquote “portable.”
So, in other words,if the first spouse to pass away
doesn't use all of the exemption

(49:17):
available to that spouse at their death,
the remaining exemption
is portable to the surviving spouse.
So the surviving spouse at his orher death has their own exemption
plus what they've receivedfrom their deceased husband or wife.
It is important to remember, though,that to maintain

(49:40):
that what we call unusedspousal exemption,
it is necessary to file a Form 706
estatetax return at the first spouse's death,
even if that return would nototherwise be required.
Well, Troy,
this has all beenan incredibly insightful,
and it seems like there's
a lot of opportunity for wealth strategymoving forward because of the OB3.

(50:05):
As we get on the last notes,
are there any initiatives that you andyour team are focusing on moving forward?
Yes.
Our wealth strategy team is developing,we're trying to develop
a couple of what I will callspecialty service offerings.
For some of our particular clients,we are looking at a corporate
executive planning programthat will combine the wealth strategy,

(50:30):
you know, wealth strategyaspects of a corporate executive’s
estate, along with efficient use of
what I call advanced compensationfor executives, how to exercise
stock options, restricted stock units, any stock awards,
and making sure that is all integratedwith the estate plan.

(50:54):
And we're also workingon a potential program
for our business owner clients, a businesstransition advisory services practice,
which would be cross-functional
acrossa lot of lines within Forvis Mazars
such as our ESOP group, our CorporateTax group, our Capital Advisors group,

(51:17):
on advising
a business owneron both his personal wealth strategy
as well as a strategyfor a business succession
or a business exit, and helpingthat business owner determine which
exit strategy or succession
strategy is in that client'sbest interests.

(51:38):
And then our Wealth Strategyteam works a lot
with our Private Client team on familyoffice services,
and we are looking at expanding and
upscaling our practice in that area.
Well, that's all very excitingand hopefully we can have you on again
here soon to maybe explorewhat those are looking like.
I would be happy to do that.

(52:00):
Well, Troy,really appreciate you joining us today.
This was incredibly insightful.
I've personally learned a lot,even though I'm
sure I studied this back in law school.
Maybe worked on itat the beginning of my career.
So, it's always good to continueto learn about
this stuff.

(52:21):
Each episode will bring you what we calla Focused FORsight
of the week, an article or webinarthat might be of interest to you.
This week's Focused FORsight is WNTO'sThird Quarter Update Webinar, aptly
named Q3 2025 update from the WashingtonNational Tax Office.
Join us to discuss recent activitiesin the tax world, strategies from OB3

(52:44):
as well as some insights into whatmight be coming up in tax legislation.
And that's our show.Thank you for joining.
Remember to subscribe and listen infor the next episode of the podcast.
Until next time.
The information set forth
in this podcast contains the analysisand conclusions of the panelists
based upon his, her or their researchand analysis of industry

(53:07):
information and legal authorities.
Such analysis and conclusionsshould not be deemed
opinions or conclusions by Forvis Mazarsor the panelists
as to any individual situationas situations are fact-specific.
The listener should performtheir own analysis and form
their own conclusionsregarding any specific situation.
Further, the panelists’ conclusionsmay be revised without notice,

(53:30):
with or without changes in industryinformation and legal authorities.