In Estate Planning, Procrastination Can Be Costly

The Blum Firm said goodbye to 2023 and hello to a new year filled with promise and opportunity.

On New Year’s 2024, I started year three of this blog urging all to adopt a resolution to update your estate plan, avoiding the temptation to be like Scarlett O’Hara and “worry about that tomorrow.” Procrastination is especially risky when it comes to estate planning. For one, there’s no guarantee we have tomorrow. But moreover, as explained below, we are living in “use it or lose it” times.

At this time of year, The Blum Firm has a tradition of mailing an annual newsletter covering highlights and planning tips. The theme of this year’s letter is “Now Is the Time for Action.” If you failed to receive a copy, notify us to add you to our mailing list. Here’s a link to this year’s letter.

As the newsletter indicates, and I frequently remind, the estate tax exemption shrinks by about $7 million at midnight December 31, 2025 ($14 million for a married couple). I’m often asked to speculate if the current $13,610,000 doubled exemption will be extended. It would take three things for that to happen: the House, the Senate, and the President would all three have to approve and pass a new law. Be aware that extending the exemption does not have bi-partisan support, and we are living in an era where passing legislation is close to impossible.

My word to the wise is to act now to lock in the doubled exemption. Don’t wait until 2025 when estate lawyers will be bombarded.

By gifting now, you can save your family over $5 million. The tax savings is considerably more if you do “squeeze & freeze” planning to first transfer your investments to a Family Limited Partnership (“FLP”) and then transfer FLP interests at a valuation discount. For example, you could transfer an FLP with $20 million of assets (discounted by 35% to $13 million) and completely avoid the 40% estate and gift tax, saving $8 million of tax. If the $20 million grows over time, you also avoid the 40% tax on the appreciation.

I recently met with a couple who told me they’d already used all their exemptions when they did their planning in 2020. They were unaware that inflation bumps in 2021, 2022, 2023, and 2024 yielded them an additional $4,060,000 of exemption. Unless they lock in that extra $4 million, they’ll lose it on the December 31, 2025 sunset date.

There are lots of ways to lock in the exemption before it sunsets. Our menu has a hearty alphabet soup selection: FLP, DGT, SLAT, BDT, GRAT, ILIT, QPRT, CRUT, CLAT, etc. The Blum Firm would be honored to help you identify the selection that’s right for your appetite.