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Financial Planning > Trusts and Estates > Estate Planning

Act Now to Avoid Estate Planning Logjam in 2025

By John Manganaro

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What You Need to Know

  • The historically high estate tax exemption will sunset at the end of 2025.
  • Demand for estate planning services is expected to surge in the next two years, and plans can take years to implement, Steve Lockshin warns.
  • Advisors don't have to have the same expertise as an estate planning attorney to add value.

Clients with sufficient wealth to leave them exposed to future estate tax burdens need to understand that the time to act on the generous estate tax exemption established in 2017 by the Tax Cuts and Jobs Act is now — not when the expanded exemption sunsets the end of 2025.

In fact, according to Steve Lockshin, an experienced financial advisor and the founder of AdvicePeriod and Vanilla, it is already becoming more and more difficult to timely source the capabilities of specialist tax planning experts and estate attorneys who understand the rapidly evolving needs of high-net-worth and ultra-high-net-worth clients.

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

This is true at the best of times, but history shows that big changes in tax laws always create estate planning logjams, and it is possible that advisors and their clients will simply not be able to source the legal expertise they need to create watertight estate plans in 2024 or 2025. It’s happened before, Lockshin warned — for example, when big changes happened in the late 1980s and in the early 2010s — and it will happen again.

“So, with that fact in mind, if you look at the calendar and you consider how long the creation of a really solid estate planning approach can take, we are already in the crunch time,” Lockshin 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 taxable when the exemption sunsets — or if the estate might be taxable in the future based on projected values.”

The good news, Lockshin said, is that advisors have a lot of places to go for support with this work, especially if they “get in the line early — like right now.”

According to Lockshin, financial advisors with deep estate planning expertise are worth their weight in gold, especially for ultra-wealthy clients. At the same time, those advisors who lack personal expertise but who are able to bring in third-party resources to maximize the value of a client’s estate will only deepen — not dilute — their firm’s value proposition.

Disruption is Coming

As Lockshin recalled, the adoption in late 2017 of the Tax Cuts and Jobs Act delivered some of the most significant changes in federal tax law in some three decades. The act made sweeping changes for both individuals and corporations, and perhaps most important for advisors in the HNW and UHNW space, it doubled the amount of the federal estate and gift tax basic exclusion.

At that time, the exclusion amount for estate, gift and generation-skipping transfer tax purposes was increased from $5 million to $10 million, and it was indexed for cost-of-living adjustments starting from 2010. For people who pass away in 2023, the exemption amount will be nearly $13 million. For a married couple, that comes to a combined exemption of a little less than $26 million.

Critically, the increase in the exclusion only applies to estates of decedents dying after Dec. 31, 2017, and before Jan. 1, 2026, and to gifts made during that period. The provision sunsets in 2026, going back to $5 million per person, indexed for cost of living.

According to Lockshin, it is hard to overstate the importance of the 2026 sunset provisions when it comes to achieving optimal estate planning outcomes for clients. Put simply, clients have only about 2.5 more years to take full advantage of the doubled exemption.

As Lockshin emphasized, a given client doesn’t need to die to take advantage of the historically generous exemptions. Rather, they simply need to enact some of the various strategies that can move their wealth out of their own estate — and ensure such strategies are appropriately documented and supported from a legal and regulatory standpoint.

“Again, advisors cannot assume that getting this done will be a quick and easy matter, even if the goals are well defined,” Lockshin warned. “Depending on the complexity, estate planning actions of this nature can take multiple years to come to fruition.”

What Advisors Can Do

If they feel like they are behind the ball, the most basic step for advisors to take today, Lockshin said, is to run a realistic assessment of a client’s holistic wealth picture. As Lockshin emphasized, it is especially important for advisors to “look beyond the assets you may be serving directly on an AUM basis and really get the full picture.”

“Frankly, a lot of advisors make mistakes in this arena because they are just focused on the assets they serve directly, and that does a real disservice to their clients,” Lockshin said. “If you run this analysis and you feel your client’s estate will become taxable after 2025, your clients very well may want to use their exemption before the sunset, while it’s still at a historic high.”

As noted, waiting too long to form and implement a strategy could be costly.

Key elements in the analysis, Lockshin said, include assessing which assets are includable in the client’s estate tax calculation and which are not — and how much exemption they have remaining in cases where they have already engaged in prior legacy planning.

“You’ll want to review each client’s current estate plans and determine which clients have or will likely have estates falling outside the 2026 exemption limit,” Lockshin explained. “For these clients, you’ll want to consider some potential strategies for moving assets out of the estates in a way that aligns with your client’s goals and values.”

For those clients with charitable intentions, Lockshin said, gifting assets to a qualified charity can be “one of the cleanest and most effective ways” to reduce one’s estate; although most strategies use little to no estate exemption.

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

A Word on Advisor Value

According to Lockshin and others, estate planning is a logical extension of the value wealth advisors bring to their clients. While many advisors lack the internal resources to be effective in guiding their clients through the process, there are many places to turn for support.

Sourcing this expertise is well worth any advisor’s time, Lockshin said, because surveys show there is a clear “estate advisory gap,” and HNW and UHNW clients are growing increasingly frustrated by the lack of support.

“There is just a huge gap between what clients want and need versus what most advisors are currently delivering,” Lockshin said. “I’ve seen surveys showing the vast majority of HNW people want estate planning services from their advisor, but only about one in four say they are actually getting that advice.”

As Lockshin repeatedly emphasized, providing better service in this area doesn’t require advisors to have all the same knowledge or expertise that an estate planning attorney can bring to the table. Far from it, it in fact.

“A big part of the value the advisor can bring is in the beginning planning phase, guiding clients through a series of conversations to think deeply about how to optimize their impact on the people they love and causes they care most about,” Lockshin said. “By first understanding their clients’ goals, this allows you to set the direction and map out the best ways to achieve those goals.”

(Image: Adobe Stock) 

John Manganaro

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