The estate and gift tax exemption is scheduled to drop in half at the beginning of 2026. This is going to shift the supply/demand ratio so far in favor of estate planners that wealthy prospective clients who know they need to make their large gifts need to start acting now.
If wealthy clients wait until the last minute, they will likely find that no capable estate planners have any capacity to get the gift trust(s) drafted, executed and funded by the end of 2025.
Act Now!
One strategy is to get the gift trust(s) drafted now and then wait to fund the gift trust(s) any time prior to the end of 2025.
By spreading the work out over time, more of our clients will be able to make their large gifts before the exemption drops in half.
History Repeats Itself
History repeats itself. First, there was the fiscal cliff in 2012. Then there was the “threat” of a Biden presidency and an upcoming tax act in 2020. Then we had the “threat” of an upcoming tax act as towards the end of 2021.
Each of those three years had something in common — a supply/demand ratio that made it impossible for many potential clients to be able to find a capable estate planning attorney to take on their work and be able to complete it by year-end.
Year 2012
In 2012, there was the threat of a fiscal cliff at the end of the year when the $5 million estate and gift tax exemption was scheduled to revert back to $1 million.
Therefore, countless numbers of multi-millionaires were knocking at the door, especially during the second half of the year, asking estate planning attorneys to hurry their $5 million gift trusts. At some point, attorneys had to start saying no to potential clients given capacity issues because there were too many people wanting to start the process later in the year.
Year 2020
In 2020, it seemed that Donald Trump would win the presidency, but then Joe Biden pulled the upset and became president. Even before that happened, many wealthy people had already hedged and started the gifting process well before the elections knowing that it may be too late if they waited until after the November elections to try to find an attorney with the necessary skillset who was still taking year-end time-sensitive clients.
Many wealthy people remember what happened in 2012 and that they shouldn’t wait until September or October to start the process. The craziness seemed to start much earlier in 2020 than in 2012 because of the intelligence gained in 2012 when many of them weren’t able to find help later in the year. Advisors were likely pushing their clients earlier in the year after having lived through 2012.
Year 2021
In 2021, with the Democrats in control of the Presidency and Congress, we expected a reduction in the estate and gift tax exemption.
I remember telling prospective clients and referral sources early in the year that if they wait until October they may not be able to get it done. I encouraged people to make their gifts before the middle of the year in order to make sure they didn’t miss the opportunity.
This mostly worked. However, to nobody’s surprise, the largest flood of potential new clients came in September and October which is exactly what happened in 2020. But overall, we learned from 2012 and 2020 and were able to handle the extra flow of work better than in either of those prior years. This made 2021 a better year than 2012 and 2020.
But then the Democrats never did get the votes to reduce the exemption. But at least many of our wealthy clients did what they should have done regardless of whether the exemption were to drop which was to use their gift tax exemption sooner rather than later.
Year 2025
Another trust tsunami is coming soon. Make sure to encourage your clients to start the process early so they don’t miss out. There is no question that every capable estate planning attorney is going to be short on capacity yet again.
History will repeat itself yet again.