As we reach the midpoint of 2025, the landscape for estate, business, and wealth planning is defined by two powerful forces: the potential for sweeping legislative change and a new, higher-for-longer interest rate environment. With Congress intensely debating the "One Big Beautiful Bill" (OBBB), many of the tax strategies we’ve grown accustomed to are on the table for significant revision.

 

This moment, while filled with uncertainty, is precisely why we plan. It’s a reminder that tax law is never static. Instead of waiting for the final text of a bill, savvy families and business owners can use this period to engage in transformational planning, positioning their wealth to be resilient for generations to come, no matter what Washington decides.

 

The OBBB: A High-Level View

All eyes are on the Senate as it debates the House-passed version of the OBBB, with a stated goal of finalizing the legislation before the July 4th recess. While amendments are likely, the core proposals aim to permanently alter the financial landscape. Key provisions on the table include:

• Making the 2017 Tax Cuts Permanent: This would lock in current individual income tax rates and the 20% pass-through deduction for qualified businesses.

 

• Permanently Higher Estate Tax Exemption: The proposal seeks to avoid the scheduled sunset of the current high exemption and establish a new, permanent, and potentially higher threshold.

 

• Business & Family Tax Relief: Proposals include an enhanced Child Tax Credit and expanded expensing provisions for business investments.

The allure of "permanence" is strong, but history teaches us that the only constant is change. This window, however long it lasts, must be seen as an opportunity to restructure wealth and build defenses against the inevitable tax increases of the future.

 

The Interest Rate Factor: A New Planning Paradigm

Beyond legislation, the most significant shift impacting wealth transfer has been the sustained increase in key interest rates used for estate planning. After years of historic lows, we have settled into a new normal.

For June 2025, the critical rates are:

• Section 7520 Rate: 5.0%

Applicable Federal Rates (AFRs):

• Short-Term (up to 3 years): 4.00%
• Mid-Term (3 to 9 years): 4.07%
• Long-Term (over 9 years): 4.77%

To put this in perspective, the Section 7520 rate has climbed significantly over the past few years, moving from sub-2% levels to a consistent band between 4% and 6%. This shift changes the math on several key strategies.

 

The Rising Rate Winners & Losers:

• Less Favorable: The cost to transfer wealth has increased for popular strategies that rely on outperforming a "hurdle rate." Grantor-Retained Annuity Trusts (GRATs) and sales to Intentionally Defective Grantor Trusts (IDGTs) are now less efficient, as assets must clear a higher interest rate before any tax-free wealth transfer occurs. Private financing and family loans also carry higher minimum interest costs.
• More Favorable: Conversely, higher rates have created powerful new efficiencies for other tools. A Charitable Remainder Trust (CRT), for example, becomes far more attractive. Higher rates increase the value of the charitable remainder interest, which in turn generates a larger, immediate income tax deduction for the grantor. This makes CRTs an exceptionally effective tool for those looking to sell a highly appreciated asset, avoid significant capital gains tax, and create an income stream.

Transformational Planning for Illiquid Wealth

A common challenge we see in the first half of this year is clients with healthy balance sheets where the wealth is "locked up"—in unrealized taxable gains, pre-tax IRAs, or illiquid business interests. These assets carry immense value but also immense potential tax liabilities and offer little flexibility. Transformational planning unlocks this liquidity and insulates the value.

 

Here are two recent examples of how we’ve addressed this challenge:

 

Case Study 1: Solving the IRA Tax Time Bomb

A couple, both in their mid-50s, were concerned about their large, compounding IRA. They understood the tax burden their heirs would eventually face under the SECURE Act's 10-year rule but found the tax cost of a full Roth conversion prohibitive. Furthermore, being under age 59½, they were hesitant to withdraw funds and incur both income tax and a 10% penalty.

• The Solution: Rather than a costly conversion, we implemented a structured premium survivorship life insurance policy to create a guaranteed $10 million income-tax and estate-tax-free death benefit. This policy design provided a perfect offset to the future tax liability of the IRA with a remarkably low initial outlay.

 

• The Transformation: The initial premium was only $22,000, a fraction of the nearly $80,000 a traditional annual premium would have been. This structured design gives them the flexibility to increase premiums and benefits later in life or even delay further funding for up to 23 years, when the youngest reaches age 75. It creates immediate protection with an incremental outlay, preserving their current cash flow while perfectly hedging the future tax risk.

Case Study 2: Planning for a Future Business Sale

We worked with a business owner’s family who recently completed a partial sale of their company. The transaction included a significant amount of retained equity, which was transferred to a trust for the next generation. This retained equity has massive growth potential but currently generates no cash flow to pay for estate planning costs. The family anticipates a second, major liquidity event in the next 5-7 years.

• The Solution: To secure the necessary estate tax liquidity now, we established a split-dollar arrangement between the business owner and the trust. This allows the trust to purchase a $60 million survivorship policy with a minimal outlay funded by the owner. For clients of a similar age, this cost was approximately $170,000 per year—a manageable figure to secure a massive future benefit.

 

• The Transformation: When the second liquidity event occurs and the trust receives substantial cash, it can then take over the premium funding using a small, incremental portion of its new earnings. The split-dollar receivable can be repaid to the estate, leaving the full death benefit outside of their taxable estate. This strategy bridges the liquidity gap, securing a massive estate planning tool today that will be self-funded by the business's future success.

As we look toward the second half of the year, the message is clear: proactive, creative planning is paramount. Now is the time to review your strategy, stress-test it against potential legislative outcomes, and leverage sophisticated tools to protect what you’ve built. Please reach out to schedule your mid-year review.