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Essential Estate Planning Insights for L3Harris Employees: Unlocking New Opportunities in 2024

New changes in federal gift and GST tax exemptions provide a unique opportunity for proactive estate planning, especially for L3Harris employees who want to transfer wealth without incurring significant taxes,' says Kevin Landis, a representative of The Retirement Group, an affiliate of Wealth Enhancement Group.

Brent Wolf from The Retirement Group, a division of Wealth Enhancement Group, encourages L3Harris employees to take advantage of the temporary increase in gift and GST tax exemptions as a means of effective estate planning.

In this article, we will discuss:

1. The role of Inflation Adjustments: How the 2024 inflation adjustments to federal gift and GST tax exemptions create new opportunities for tax efficient wealth transfer.

2. Strategies for Estate Planning: An overview of various estate planning strategies including SLATs, GRATs, and Dynasty Trusts that can be useful for L3Harris employees.

3. State Tax Consequences: How state taxes affect estate planning and what this means for residents of New York, New Jersey, and Connecticut.

The federal gift and generation-skipping transfer (GST) tax exemption amounts have been raised due to the latest inflation adjustments from January 1, 2024. This adjustment presents new possibilities for sophisticated estate planning especially for the benefit of L3Harris employees. It is now possible to exclude $13,610,000 for an individual and $27,220,000 for a married couple from federal gift and GST taxes. In the present economic environment of low asset values these changes present a good opportunity to move wealth across the generations.

The federal estate and gift tax exclusion, as well as the GST tax exemption, were initially heightened by the Tax Cuts and Jobs Act of 2017 and then heightened again by the 2024 inflation adjustments. This enables many assets to be transferred without tax consequences during the owner’s lifetime or at their death. However, these higher exemption levels are only temporary and will return to their pre-2018 levels (adjusted for inflation) beginning January 1, 2026.

The new regulations increase the amount that can be gifted in 2024 by an extra $690,000 for individuals and $1,380,000 for married couples if other exemption thresholds have been used. This update is important as it provides opportunities for taking full advantage of tax-deferred wealth transfers while the tax laws permit it. The American Taxpayer Relief Act of 2012 also allowed the surviving spouse to use the deceased spouse’s unused federal estate tax exclusion in paying for the deceased’s lifetime gifts or estate planning.

The annual federal gift tax exemption has also been increased to $18,000 per recipient, or $36,000 for married couples who choose to gift together. This increase expands the opportunities for tax planning to gift and still leave some exemption available to pay for tuition or medical expenses — important for L3Harris employees who are helping to pay for their families’ education or health care. It also helps with the possibility of gradual giving.

State-Specific Factors to Consider:

This is especially important for residents of New York, New Jersey, and Connecticut because of state tax consequences. For instance, New York does not have a gift tax but has many opportunities to take advantage of large federal exemptions to avoid state estate taxes, especially in light of recent market conditions. New Jersey has no gift or estate taxes, but does have an inheritance tax on transfers to non-lineal descendants at rates up to 16%. Connecticut is the only state with a gift tax, but because of the synchronization of federal and state exemptions, the burden is reduced.

Estate Planning Techniques:

In the present tax regime, the following strategies should be considered for NCR employees:

Spousal Lifetime Access Trusts (SLATs): These enable the client to invest and grow assets outside the taxable estate while ensuring that the spouse is well provided for through the use of exemption amounts.
Grantor Retained Annuity Trusts (GRATs): These provide for the transfer of any appreciation in the assets to beneficiaries without incurring tax on the amount retained in the annuity, which is particularly advantageous in a volatile market.
Dynasty Trusts: These trust arrangements are created to take full advantage of the GST tax exemptions and hold assets beyond estate, gift, and GST taxes for multiple generations, providing a long-standing protection against creditors’ claims.
Intrafamily Loans and Sales to Grantor Trusts: These methods use valuation approaches and low-interest rates to move the wealth and at the same time reduce the value of the estate that will be taxed, while the assets grow.

Income Tax Considerations:

Grantor trusts are quite efficient from the perspective of income taxes, as the trust’s income is reported on the grantor’s return, allowing the assets to grow without being taxed. This structure can be very useful for asset swaps that may reset the basis for capital gains after the grantor has died. In conclusion, the temporary increase in federal tax exemptions presents an important opportunity for NCR employees to plan their estates. Using these exemptions together with sophisticated gifting and trust arrangements can lead to substantial tax savings and wealth protection.

NCR Retirement Plans:

As NCR employees approach retirement, it is essential to consider how their retirement plans will affect estate planning. NCR offers a pension plan that provides retirees with a choice between a lump sum or annuity option. Employees should carefully evaluate these options in light of their broader estate plans, as the lump sum may provide more flexibility for investment and wealth transfer, while an annuity offers guaranteed monthly income for life.

NCR also offers a 401(k) savings plan, which is a critical component of retirement planning. Employees should be aware of contribution limits and employer matching contributions, and take advantage of any available catch-up contributions if they are aged 50 or older.

Health Benefits for Retirees:

NCR employees retiring before the age of 65 may also be eligible for continued health benefits through the company. NCR typically offers medical, dental, and vision coverage for retirees under certain conditions, though these benefits may vary depending on whether the employee is a union or non-union member. Understanding the benefits package and the eligibility requirements is crucial to ensuring that health coverage is seamless during the transition into retirement.

Unique Programs and Benefits:

NCR employees have access to various programs that can enhance their retirement planning. Financial planning services are available to employees who wish to better understand how their pension, 401(k), and other retirement savings will integrate into their long-term goals. Union and non-union employees may have different eligibility for some of these services, so it's important to review the details specific to one's employment status.

Considerations for Union vs. Non-Union Employees:

For union employees, NCR’s pension plan may have specific provisions or collective bargaining agreements that affect benefits, eligibility, or retirement age. Non-union employees, on the other hand, may have different flexibility with their pension plan options and 401(k) contributions. It's essential for NCR employees to understand the distinct provisions based on their union or non-union status to make informed decisions about their retirement options.

Final Thoughts:

As NCR employees near retirement, it is important to have a clear understanding of both state and federal tax laws and how they apply to retirement benefits. By utilizing tax-efficient strategies, employees can ensure their retirement assets are maximized, and estate taxes are minimized. Whether you're nearing retirement or have already retired, having an appropriately tailored estate plan that considers NCR’s unique retirement benefits and the complexities of state tax laws is critical for achieving financial security.

The combination of federal exclusions, state-specific tax considerations, and tailored financial strategies can provide NCR employees with the tools needed to preserve and pass on their wealth effectively.

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These adjustments to the GST and federal gift tax exemptions are like steering a ship through a rapidly changing sea. Like a good captain, L3Harris employees can take advantage of these temporarily higher exemptions, now at their highest ever, to steer their retirement.

Disclosure: Not tax advice. Please consult with a qualified tax professional regarding your unique situation.

Sources:

1. 'IRS Provides Tax Inflation Adjustments for Tax Year 2024.' Internal Revenue Service, 9 Nov. 2023, www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024 .

2. 'How Do the Estate, Gift, and Generation-Skipping Transfer Taxes Work?' Tax Policy Center, Jan. 2024, www.taxpolicycenter.org/briefing-book/how-do-estate-gift-and-generation-skipping-transfer-taxes-work .

3. 'Estate, Gift, and GST Taxes.' American Bar Association, 2024, www.americanbar.org/groups/real_property_trust_estate/resources/estate_gift_and_gst_taxes .

4. Driessen, Grant A., and Jane G. Gravelle. 'Overview of the Federal Tax System as in Effect for 2024.' Congressional Research Service, 2024, crsreports.congress.gov/product/pdf/R/R45145.

5. 'What's New — Estate and Gift Tax.' Internal Revenue Service, 2024, www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax .

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Beneficiary Selection: Choosing a beneficiary is a crucial step for L3Harris employees. Adding a spouse or another individual as a beneficiary may reduce the employee's pension benefit but ensures that a portion of the pension continues after the employee's death(L3Harris Technologies I…). Employees should be aware of the survivor benefit provisions, spousal consent requirements, and the need to regularly update their beneficiary information(L3Harris Technologies I…).

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How can employees of L3Harris Technologies contact the Benefits Service Center to address specific questions regarding their pension plan or retirement strategy? It is essential for employees seeking clarity on their pension benefits or retirement planning to know how to reach out to the L3Harris Benefits Service Center. This center acts as a vital resource, and understanding its operationsâ€”including contact times, methods of contact, and the types of inquiries that can be addressedâ€”will enable employees to receive the guidance they need regarding their benefits.

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