As tax laws and legal landscapes shift, families will want to stay ahead of the curve when it comes to financial and tax planning. We caught up with KLR partner Dave Desmarais to hear his timely thoughts on potential impacts of upcoming tax policies and strategies for protecting assets amid the sunset of the Tax Cuts and Jobs Act (TCJA). Let’s dive in.

Q: With tax changes on the horizon, what should people be focusing on right now to make the most of current tax laws?

Dave: Right now, we're actually projected to remain in the same tax environment next year as we had this year, so 2025 should feel familiar. However, 2026 is when we’ll see some big changes, particularly in estate tax exemptions. The exemption amount is set to drop from the current $13.61 million (or nearly $14 million for married couples) to $5 million, adjusted for inflation, which may bring it to around $7 million.

While 2026 seems far away, now is the time to start planning ahead. By this time next year, attorneys may be booked solid, and you’ll need them to execute the necessary documents for wealth transfer before the exemptions drop.

For 2026, we'll see the return of deductions that are allowed for regular tax purposes but not AMT,so it will be a big shift for many in terms of how they plan around that. The top tax bracket will also increase to 39.6%, so you may want to consider accelerating some income into 2025 to avoid that higher rate.

Q: What are some key year end tax planning considerations?

Dave: People often think about two main things in November and December: charitable donations and exercising incentive stock options. Making charitable contributions can reduce your taxable income, and if you have incentive stock options, you might consider how many you can exercise without triggering the Alternative Minimum Tax (AMT).

If you have incentive stock options, 2024 and 2025 are the last years to potentially exercise these without getting hit by AMT. By 2026, many people will already be subject to AMT, which means there won’t be an option to exercise ISOs without triggering it. So if you’re thinking about exercising options, it’s wise to evaluate this before the rules change.

Q: How might the upcoming election impact tax policies, and what steps can families take now to prepare?

Dave: Remember, you do not want to pay taxes based solely on predictions—tax laws could always change. However, I will say that the tax landscape will become clearer in 2025 and 2026, so families might consider some smart timing strategies now. For example, accelerating income into 2025 from 2026 could be wise if rates are likely to increase. Likewise, delaying charitable contributions from 2025 to 2026 may make those deductions more valuable if higher rates return.

For those already over 59 ½ but not yet required to take RMDs, you should consider perhaps taking distributions now while in lower tax brackets. Regardless of age, there could be opportunities to convert your traditional IRA to a Roth while you’re in a lower tax rate as well. For example, for someone in the 32% bracket now, it’s worth looking at doing enough of a Roth conversion to get you just below bumping up to the 35% bracket if you think you’ll be in the 35% or higher tax brackets when you ultimately take distributions.

Q: Should people make changes to their investment portfolios with upcoming tax changes in mind?

Dave: It’s definitely a consideration, especially after recent strong market performance. Take a close look at your portfolio—is your allocation still on target? For instance, if you were aiming for a 60/40 stocks-to-bonds balance but now find yourself at 75/25, it might be time to rebalance. With low tax rates currently, selling assets now to rebalance can sometimes make sense. Focus on achieving the right balance, rather than letting tax considerations prevent you from making necessary changes.

Q: When it comes to non-tax-related planning, what should individuals focus on to protect and grow their assets?

Dave: Something that is essential for everyone, regardless of age, income or assets is having the basic estate planning documents in place. Having a will, healthcare proxy and a durable power of attorney are critical. Surprisingly, many people haven’t set up even the simplest plans for what happens when they’re no longer here. Once you acquire bigger assets like a home, consider setting up a revocable trust to avoid probate. The last thing your family should have to worry about is spending countless hours in court getting your affairs in order. Also, make sure your asset titling is up-to-date and accurate. A rule of thumb I live by is, if you’re out of college and have a job, you should have a will.

For those with significant assets, it’s essential to have what I call the “three-legged stool”- a dedicated accountant, attorney and investment advisor, who collaborate regularly so that they’re all on the same page.