As an estate planning lawyer, one of the favorite hats I wear is to be a teacher. From the early days of my career over 45 years ago, I discovered a passion for educating people about estate planning. It all started when I was a new lawyer and got invited to speak on estate planning for a “Money, Money, Money” seminar sponsored by Fort Worth National Bank. It was a two-hour course, and I was amazed to discover the adrenaline rush it gave me. I tend to get really enthusiastic, ever louder and faster as I get wound up, and even when I try to lower the volume and slow down, it’s a lost cause. My friend Bob Mitchell once affectionately described me as a Baptist preacher (the fire and brimstone variety), and I jokingly redubbed myself a fire and brimstone rabbi.
Over my career, I have enjoyed many opportunities to speak across the country. It was a special honor recently when I got to speak to a hometown crowd, the Tarrant County Probate Bar Association. We have a large and active group of probate attorneys in this area, and it was fun to look out on a sea of friendly and familiar faces. My topic was Estate Planning to Do Before the Clock Strikes Midnight on 12/31/2025. It was a pretty tax-centric presentation, and much of that audience doesn’t want anything to do with a topic that has the word “tax” in it, so I started by going over some basics and getting us all on a level set. I know how they feel, as I feel the same way when they teach me probate litigation topics.
I started by describing this topic as “Cinderella Estate Planning,” because when the clock strikes midnight on 12/31/25, the coach turns back into a pumpkin. You go to bed on New Year’s Eve 2025 with an estate tax exemption of around $14 million, and you wake up on New Year’s morning with an exemption of around $7 million. What planning can we do to lock in the doubled exemption, so we don’t waste half of it? I call this area of our law practice “use it or lose it” planning. The clock is ticking fast. The deadline will be here before we know it.
The sunset date (when the coach reverts to a pumpkin) is part of 2017 Trump tax legislation that cut taxes, but only temporarily. Click on this link for a copy of my PowerPoint to discover estate planning ideas to do before the sunset happens. I’ll summarize briefly to say we’re in the “Golden Age” of Estate Planning. In particular, we can employ “squeeze & freeze” techniques, such as transfers to FLPs, gifts and sales to Grantor Trusts (like a SLAT, DGT, 678 Trust, GRAT, ILIT, CRUT, CLAT, QPRT, etc.), and the one Biden hates the most called stepped-up basis where you “Buy, Borrow, Die” and never pay income tax on your gains. There’s a lot of estate planning you can do over the next year to get in front of the looming sunset date. I also address some challenge areas, such as when a couple wants to only transfer half as much as needed, or when one spouse has wealth and the other doesn’t, or when the bulk of assets are in an IRA, or “use it or lose it” planning for a single person.
Income tax breaks will also go away upon sunset, where the individual top rate will go from 37% to 39.6%, and the corporate income tax rate will go from 21% to 35%. Consider accelerating income into 2025 from 2026 to pay the lower rate. As a silver lining, the SALT cap (limiting the deduction for state and local taxes at $10,000) goes away in 2026, so defer paying large property taxes from 2025 into 2026 to get a tax deduction. Another popular idea is to convert a traditional IRA into a Roth IRA before 2026, so you pay the income tax hit at a lower rate.
Will the sunset date be extended? Every commentator I read is predicting no. The reason is that it is already baked into the law, and for sunset not to happen, Congress would have to pass a new law and the President would have to sign it. That’s a hard thing to pull off in the current legislative environment with record low passage of new laws.
I end with a “Word to the Wise.” Don’t put off the planning. It takes time to design the right strategy for you and put it into effect. Tax lawyers will likely be inundated in 2025, like we were in 2021 when new legislation (that would have shut down most of these tools) came within two votes of passing. Business Insider affirms my prediction that “estate planning will rev up into high gear as the end of the Trump tax cuts approaches.” So please get started early and avoid the crunch. My colleagues and I are pleading with you to get started early.
Marvin Blum was honored to speak to the Tarrant County Probate Bar Association on “Estate Planning to Do Before the Clock Strikes Midnight on 12/31/2025.”