Estate planning

Act now to avoid the pitfall of estate planning in 2025


Clients with enough wealth to leave them exposed to the burden of future property taxes must understand that now is the time to act on it. Generous exemption from property taxes It was created in 2017 under the Tax Cuts and Jobs Act Now — not when the exemption is expanded Sunset at the end of 2025.

In fact, according to Steve Lochchin, an experienced financial advisor and founder counseling period And vanillaIt is becoming more and more difficult to obtain the timely capabilities of specialized tax planners and estate attorneys who understand the rapidly evolving needs of high net-worth and excess wealth clients.

In a new interview with ThinkAdvisor, Lockshin warns in no uncertain terms that clients and advisors who fail to act now to prepare for the expiration of the mortgage credit and other tax changes likely to occur in the coming years are setting themselves up for failure. As Lochchin has repeatedly emphasized, estate planning is a complex and time-consuming process, and any given strategy can take years to fully implement.

This is true in the best of times, but history shows that major changes in tax laws almost always create a pitfall in estate planning, and it’s possible that advisors and their clients simply won’t be able to get the legal expertise they need to create solid estate plans in 2024 or 2025. It has happened before, Lokshin warned — for example, when big changes occurred in the late 1980s and early 2010s — and it will happen again.

“So, with that fact in mind, if you look at the calendar and consider how long it can take to create a robust approach to estate planning, we’re really in a tough time,” Lochsin said. Simply put, now is the time for financial advisors with high net worth clients to look carefully at their estates and ascertain whether they will be taxed when the exemption expires – or whether estates may be taxed in the future based on expected values.

The good news, Lochchin said, is that advisers have plenty of places to go for support in this business, especially if they “join the line early – as they do now”.

According to Lockshin, financial advisors with deep experience in estate planning are worth their weight in gold, especially for wealthy clients. Meanwhile, those advisors who lack personal experience but are able to bring in outside resources to maximize the value of a client’s property will only deepen—not weaken—their firm’s value proposition.

Turbulence is coming

As Lochchin mentioned, the adoption of the Tax Cuts and Jobs Act in late 2017 led to some of the most significant changes to federal tax law in nearly three decades. The Act made sweeping changes for both individuals and businesses, and perhaps most importantly for HNW and UHNW counselors, it doubled the amount of the basic exemption from the federal estate tax and gift tax.

At that time, the exclusion amount for estate, gift, and generational tax purposes was increased from $5 million to $10 million, and indexed for cost-of-living adjustments starting in 2010. For people who die in 2023, the exemption amount will be approximately $13 million. For a married couple, that amounts to a combined exemption of just under $26 million.

Importantly, the increase in exclusion only applies to estates of decedents who die after December 31, 2017, and before January 1, 2026, and to gifts made during that period. This benefit ends in 2026, and returns to $5 million per person, taking into account the cost of living.

According to Lockshin, it is difficult to overstate the importance of the 2026 expiration provisions when it comes to achieving optimal estate planning results for clients. Simply put, customers only have about 2.5 more years to take full advantage of the double waiver.

As Luckchin emphasized, a customer need not die to benefit from historically generous exemptions. Instead, they simply need to enact some laws different strategies It can transfer their wealth from their own property – and ensure that these strategies are appropriately documented and supported from a legal and regulatory point of view.

“Again, advisors cannot assume that this will be quick and easy to accomplish, even if the goals are well defined,” Lochchin cautioned. “Depending on the complexity, estate planning procedures of this nature can take several years to bear fruit.”

What advisors can do

If they feel they are behind the ball, the key step advisors must take today, Lochsin said, is to make a realistic assessment of the client’s overall wealth picture. As Lochchin emphasized, it is particularly important for advisors to “look beyond the assets you might serve directly on an AUM basis and really get the full picture.”

“Honestly, a lot of advisors make mistakes in this area because they only focus on the assets they serve directly, and that really hurts their clients,” Lochsin said. “If you do this analysis and feel your client’s estate will become taxable after 2025, your clients may want to use their exemption before sunset, while it’s still at a historically high level.”

As mentioned, waiting too long to form a strategy and implement it can be costly.

Key elements of the analysis, Lochchin said, include evaluating which assets can be included in a client’s estate tax calculation and which are not — and how much exemption they have left in cases where they’ve already participated in previous legacy planning.

“You will want to review each client’s existing estate plans and identify clients who have or are likely to have properties that fall outside the 2026 exemption threshold,” Lochchin explained. “For these clients, you will need to consider some potential strategies for moving assets out of real estate in a way that aligns with your client’s goals and values.”

For those customers with charitable intentions, Lokchin said, Gifting assets to an eligible charity It can be “one of the cleanest and most effective ways” to reduce one’s ownership; Although most strategies use little or no real estate forgiveness.

For clients who are more focused on preserving wealth in the family, there are many other strategies to consider, and they range from the relatively straightforward to the very complex.

A word on advisor value

According to Lokchin and othersEstate planning is a logical extension of the value that wealth advisors provide to their clients. While many advisors lack the in-house resources to be effective in guiding their clients through this process, there are many places to turn for support.

Obtaining this expertise is worth any consultant’s time, Lochchin said, because surveys show that there are “Gap real estate advisoryHigh net-worth and ultra-high-net-worth clients are increasingly frustrated by this problem lack of support.

“There is a huge gap between what clients want and need versus what most advisors currently provide,” Lochchin said. “I’ve seen surveys showing that the vast majority of high net worth people want estate planning services from their advisor, yet only about one in four say they actually get that advice.”

As Lockshin has emphasized time and time again, better service in this area does not require that advisors have the same knowledge or experience that estate planning attorneys can bring to the table. Far from it, actually.

“A big part of the value a counselor can bring is in the initial planning stage, guiding clients through a series of conversations to think deeply about how they can improve their impact on the people they love and the issues they care about most,” Lochchin said. “By understanding their customers’ goals first, this allows you to set direction and chart the best ways to achieve those goals.”

(image: Adobe Stock)


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