Yes, You Have to Update Your Planning
Estate planning is about as much fun as getting a root canal. Unless there is a strong driver, like a pending change in taxes (there is with the exemption dropping in 2026) or asset protection need (can you ever know when someone might sue?) people tend to put off planning. That can be a costly and difficult mistake. If you or a loved one experience a life changing health issue, it may be too late to plan as signing documents may be impossible. If a claim arises, and certainly after a lawsuit is filed, it is probably too late to do asset protection planning. If you have a family business interest that might balloon in value, after the buyout deal, you will have lost an opportunity to have moved the asset out of your estate at a lower value. So, the moral of this tale is simple, plan now.
The single most common excuse for not planning (other than finding it unpleasant and that your advisers bill for their time) is “nothing has changed.” Seriously? What in the world is the same as only a few years ago? The best planning done a decade ago is unlikely to reflect your current financial position, family relationships or the most modern estate and related planning techniques.
So, give up the excuses and make a plan to plan!
Update Your Will, etc.
If your will, health care documents and financial power of attorney are even five years old, are they current? Are the people you named still those you want to name? Are their new marriages, divorces, grandchildren? Should the documents be update for those developments? Is the planning what works for your current net worth and under current law? If the documents are more than ten years old, is it worth the discussion or perhaps you should just get them updated. Too many people assume “Oh I have a will,” yes, but if it is old and outdated the cost of getting current documents may prove far less of a cost and hassle then the problems outdated, or inadequate documents might create.
The Elephant in the Tax Room
The gift, estate and generation skipping transfer (“GST”) tax exemptions will all be cut in half in 2026. While that might seem like a long time away it is not. There is often lots of preliminary steps to planning to use exemption and the sooner you start the better. There are tax doctrines that the IRS (and creditors!) can assert to unravel your planning. Time is your ally in trying to deflect those challenges. For example, assume most of the assets you want to plan with are in your wife’s name alone. She might need to retitle some assets you are your name, so you have assets to gift to an irrevocable trust to use your exemption. The sooner the gift is made so that the gifted assets can be in your name before you regift them, the better. The more time those assets are in your name, the more time you can exert control over them, reinvest them in different ways and so forth. That may (no assurance) help deflect a challenge that the ultimate transfers were really by your wife and not by you. So plan now. Gift (if that is appropriate) now. Don’t delay. A common estate planning tool for married couples are spousal lifetime access trusts (“SLATs”). Each spouse creates a trust (with materially different provisions) for the other spouse and family/loved ones. Each spouse is in some manner a beneficiary of the other spouse’s trust. The hope is that in this way assets are removed from both of your estates, and the reach of your creditors, yet you can still gain some access to them if needed. Waiting to do this at the end of 2025 is not optimal. Better for one spouse to create and fund a trust in early 2024 and the other spouse to wait until later in 2025. The more time between the trusts, some advisers might suggest, the better the likelihood of differentiating the two trusts from a challenge by the IRS or a creditor using the reciprocal trust doctrine. Under that doctrine if the two trusts are too similar, then they can be uncrossed, and the plan pierced. So, plan now, do not wait.
But you do not have enough wealth to worry about all of this? That might be true but predicting tax law changes is less accurate than predicting the weather (and we all know how reliable whether forecasts are!). Everyone needs to worry about asset protection planning, lawsuits happen, and if the tax laws get harsher and the exemption lower, you might lose out on trying to meet that planning objective.
For more see: https://www.forbes.com/sites/martinshenkman/2023/12/26/estate-plan-in-the-new-year/?sh=464963385840
Arthur H. Geffen
Attorney & Counselor at Law
17330 Preston Rd., Suite 200D-260
Dallas. TX 75252
469-442-2640
214-447–0241 FAX
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