Here’s to a new year and all the promise it holds for a brighter 2024! In the spirit of new year’s resolutions, let’s tackle the number one obstacle to estate planning: procrastination. In Gone with the Wind, Scarlett O’Hara famously dodged today’s problems by declaring, “I’ll worry about that tomorrow.” Scarlett’s decision to violate Thomas Jefferson’s proverb and “put off until tomorrow that which could be done today” may have helped her cope with Civil War devastation, but it’s not a wise strategy for estate planning. The most obvious reason is our mortality. We have no guarantee of living until tomorrow. But there’s another reason not to tarry. There’s about to be a mad rush to do “use it or lose it” planning by December 31, 2025.
As Hayley Cuccinello warns in a recent Business Insider article, “In the next two years, estate planning will rev up into high gear as the end to the Trump tax cuts approaches.” In particular, a person’s unused lifetime estate and gift tax exemption will decline by about $7 million as the clock strikes midnight on December 31, 2025. I call it the “Cinderella” effect—when her coach suddenly turns back into a pumpkin. Go to bed with a $14 million exemption. Wake up with a $7 million exemption. Poof—$7 million exemption is gone ($14 million for a couple).
Here’s another reason to examine your estate plan in the new year. On January 1, 2024, the lifetime exemption rose by $690,000 to $13,610,000 per person. Even if a married couple fully utilized their exemptions through prior planning, they now have an additional $1,380,000, half of which will go to waste in not locked in by December 31, 2025. In addition, the annual exclusion for gifts rose from $17,000 per donee to $18,000 per donee, so a couple can now give each child (or any other donee) $36,000 free of estate and gift tax.
By using certain squeeze & freeze tools like DGTs, SLATs, and GRATs, you can lock in the doubled lifetime exemption before it sunsets in half. However, you must act soon, lest you awaken with remorse on New Year’s Day, two years from now.
Through creative trust planning, you can lock in the exemption but retain access, control, and flexibility over your assets. As Cuccinello points out, “Some of these tax avoidance techniques might be eyebrow-raising, yet they are perfectly legal.”
In addition to the above-mentioned squeeze & freeze ideas, Cuccinello touts Qualified Personal Residence Trusts (QPRTs), Charitable Remainder Trusts (CRTs), Private Placement Life Insurance (PPLI), and Dynasty Trusts that last up to 1,000 years (note that Texas now allows 300-year trusts). She also advocates doing planning before the economy fully recovers. “The down market has one silver lining…. It is an optimal time to create new trusts as people can transfer depressed assets” at a lower valuation. Pre-recovery planning beats post-recovery planning.
Two years may seem far off. But if your experience is like mine, two years will fly by in a flash. The older I get, the more time seems to speed up. Moreover, waiting until 2025 to plan is also a risky idea. Estate Planning lawyers will be swamped. My colleagues and I learned in 2012 and 2021 how challenging it is to handle the expanded workflow from impending law changes.
As we move into 2024, now’s the ideal time to start the planning process. I urge all who want to lock in the Trump tax cuts to get in front of the work crunch that’s coming. The clock is ticking. Make it a goal to start estate planning soon and wrap it up during 2024. Years from now, you’ll celebrate the work you did to set up your family for success.
Marvin E. Blum
The Blum Family wishes you all the best for 2024!