Paul O. Dillon, Attorney at Law

What are the Changes in Estate Planning for 2025?

Federal laws about estate taxes aren’t the only ones that estate planning attorneys must stay up to date with. There are changes to state estate laws, inheritance laws, and, more recently, issues surrounding digital assets that require attention. A recent article from Dermatology Times, “Anticipated Changes in Estate Planning for 2025 What Dermatologists Need to Know,” contains information not just for doctors, but for everyone.

Will the High Federal Estate Tax Exemption End?

The federal estate tax exemption is now $13,990,000. However, it is scheduled to drop to $seven million on Jan. 1, 2026, unless a new tax law changes the expiration date. As it stands now, anyone may gift nearly $14 million (or almost $28 million for a married couple) without paying federal gift or estate tax. Once the New Year's Eve parties end in 2026, the gift and estate tax limit will decrease to approximately $7 million, applicable to gifts made during your lifetime or at your death. Federal gift and estate tax rates are 40%, which makes this exemption particularly valuable to high-income earners.

There is no way to know what will happen to these exemptions, so planning for a worst-case scenario is worthwhile. One strategy is simply gifting assets expected to appreciate to an irrevocable trust, with family members as beneficiaries. They could be a spouse, children, grandchildren, or future descendants. Such a trust also provides creditor protection, especially important when estates are large.

Inherited Retirement Accounts and Required Minimum Distributions

If you inherited an IRA before 2020, you’re exempt. However, anyone inheriting an IRA after 2020 may be subject to new Required Minimum Distributions (RMDs) starting January 1, 2025. The exceptions include being the spouse or a minor child or being less than ten years younger than the original account owner, and being disabled or chronically ill. Otherwise, you’ll have to withdraw the entire account by the tenth anniversary of the original owner’s death.

A few more details were added to this rule. If the deceased account owner was already taking Required Minimum Distributions (RMDs), the heir of the IRA is also required to take annual distributions. Suppose the original owner wasn’t required to take annual distributions upon death. In that case, the beneficiary can take withdrawals at intervals of their choosing, if the entire account is depleted within the ten years. Penalties for failing to take Required Minimum Distributions (RMDs) as required are high, so it is essential to consult with your estate planning attorney to ensure compliance with IRS rules.

Local Estate Taxes

Your estate planning attorney can guide you through the estate taxes in your state. Some states also impose inheritance taxes. The rate of the inheritance tax depends upon the relationship between the heir and the decedent. The estate typically pays the estate tax, and the heirs pay the inheritance tax. Some states impose both inheritance and estate taxes, while others do not.

Estate Issues Concerning Cryptocurrency

As more people invest in cryptocurrency, this intangible new asset class needs to be incorporated into the estate plan. You’ll want to name a digital executor who is familiar with this brave new world, as it has its own unique language and skill set. Someone who doesn’t know the difference between a cold wallet and an NFT won't know how to protect their digital wealth.

Talk with your estate planning attorney before too much of the year slips away. It takes time to plan and execute estate plans, and waiting until the fourth quarter of 2025 may not provide enough time to implement a plan to protect your estate.

Reference: Dermatology Times (March 21, 2026) “Anticipated Changes in Estate Planning for 2025 What Dermatologists Need to Know”

Why Is Estate Planning Important?

Estate planning is part of long-term planning, no matter what the size of a person’s investment portfolio or their total net worth. It protects the individual and their property, which is why everyone needs an estate plan. Estate planning is an umbrella term used to refer to everything from asset allocation after death to planning for incapacity and end-of-life healthcare decisions, according to a recent article in The Daily News, “What to know about estate planning.”

Typical components of an estate plan include a last will and testament, power of attorney, healthcare directives and trusts. Most surveys conducted in the last few years show only a third of all American adults have a will, and more than half think they don’t need an estate plan because they don’t own enough assets.

Here’s all you need for an estate plan to protect yourself and your loved ones:

A will is the document used to distribute assets after your death. Working with an estate planning attorney who knows the laws of your state is the best way to ensure that your wishes are followed. Trying to do this on your own or with an online platform puts your will at risk of being deemed invalid by the court, which would put your entire estate into the hands of your local probate court.

The will is used to name an executor to carry out the directions you’ve expressed in the will. It is also used to name a guardian if you have minor children. Without a will, or if a will is found to be invalid, the court will name someone to take over distributing your assets. If you have young children and both parents are deceased, the court will decide who should raise your children.

Trusts are used to protect assets, minimize taxes and safeguard assets for beneficiaries. There are many different types of trusts, and an experienced estate planning attorney will know which type is best for your family. For instance, if a family member is disabled, you may need a Special Needs Trust. Your estate planning attorney will also discuss whether you need a Revocable or Irrevocable Trust.

Trusts are used to shield assets from creditors and may be part of Medicaid planning. Another benefit is that assets in a trust don’t go through the probate process. If you are concerned about disgruntled family members poring over your will—which becomes a public document after it is entered into probate—you may wish to use a trust to keep your estate and your assets private.

Planning for incapacity is an integral part of an estate plan. Suppose you become incapacitated without any estate planning. In that case, your family will need to go to court to be able to speak with your doctors, talk with the health insurance company and take part in your healthcare decision-making. Court proceedings are costly and take time; they are not something you want to be embroiled in during a health emergency.

Your estate plan should include a Power of Attorney, which names another person to act on your behalf if you are incapacitated. You’ll also want a Healthcare Proxy to permit another person to make medical decisions on your behalf. An Advanced Directive will express your wishes for what kind of care you want if you can’t communicate your wishes.

Having an estate plan expresses your wishes for more than your property distribution. If you don’t have an estate plan, contact an estate planning attorney to discuss your intentions for assets, beneficiaries and your future. Most people are surprised at how relieved they feel once this task is taken care of. The peace of mind knowing you and your family are protected is well worth the effort.

Reference: The Daily News (Jan. 30, 2025) “What to know about estate planning”

What Is a Flexible Irrevocable Trust?

Estate planning attorneys use a variety of trusts and often recommend irrevocable trusts, according to a recent article from Kiplinger, “Sophisticated Planning with Flexible Irrevocable Trusts.” Irrevocable trusts are commonly used for Special Needs Trusts to help individuals become eligible for Medicaid and veterans’ benefits and to minimize tax liabilities.

The term “irrevocable” can cause concerns for people who are used to maintaining complete control over their assets. However, careful drafting of these documents can allow indirect control over assets, income and ownership, while providing flexibility usually not associated with irrevocable trusts. A flexible irrevocable trust provides the ability to respond to changes in circumstances, a welcome option for many.

How do flexible irrevocable trusts work? Assets are not transferred directly into the irrevocable trust. Instead, they are transferred to a legal entity like a Limited Liability Corporation (LLC), an S-Corporation, or a Family Limited Partnership (FLP) controlled by an individual. An interest in the entity is then transferred to the irrevocable trust. Nonvoting interests in the entity are then transferred to the trust. Done correctly, the individual retains control of both the entity and the asset.

In this situation, the person who is directing the creation of the trust will need to designate the initial trustee who will oversee transactions and activities for the trust. Some people are more comfortable appointing themselves as the initial trustee. However, it’s better in this case if they are not the initial trustee. For instance, if they are the initial trustee for a trust created for their children, distributions will be limited to pay for the health, education, maintenance and support, known as HEMS, if the goal is to exclude assets from the estate for tax purposes.

HEMS distributions, however, could eliminate or impede beneficiary protection from creditors. The creditor could say the beneficiary has a right to the HEMS distribution and take this amount from the trust.

The trustee, when not the individual who created the trust, may have total control to make distributions, which provides better asset protection to the trust’s beneficiaries. You must be 100% certain that the trustee will act on your instructions.

When selecting a trustee, keep two things in mind: while you are living, you want the trustee to follow your instructions, and after your death, you want someone whose judgment you trust implicitly. The best candidate may be an adult child if the family dynamics and history support this decision.

Having the ability to remove the trustee and designate a new one without cause is another critical part of drafting the trust.

If the need to replace the initial trustee occurs, be careful not to select someone who is related to you, a lineal descendent, or an uncle or aunt. Don’t name someone who is an employee of a business of which you own a significant share. While a related or subordinate person may be a successor trustee, they should not be the primary trustee.

These types of trusts require the knowledge of an experienced estate planning attorney. Consult an estate planning attorney if your circumstances warrant a flexible, irrevocable trust.

Reference: Kiplinger (Jan. 30, 2025) “Sophisticated Planning With Flexible Irrevocable Trusts.”

Estate Planning Actions for 2025

Changes are coming in 2025, and being prepared isn’t just a good idea—it’s mission-critical for your estate plan to succeed. Key developments are outlined in the article “The 2025 Theme for Estate Planning: Be Prepared” from Forbes. Here’s what you need to know and steps to consider taking in the coming year.

Corporate Transparency Act and Reporting Compliance: As of this writing, a court injunction has been re-instated for Limited Liability Corporations and other legal entities to file detailed ownership reports for Beneficial Ownership Information or BOI. The uncertainty may continue as the Texas Top Cop Shop v. Garland case in the Fifth Circuit continues. Your estate planning attorney will recommend what you should do to comply whether this changes again (and again). In the meantime, gather documents and review trusts, LLCs and any entities you own to see which are subject to CTA reporting.

2017 Tax Cuts and Jobs Act. Whether the tax cuts resulting from this act are made permanent or sunset on December 31, 2025, steps must be taken to protect your estate. Lifetime gifting to irrevocable trusts and the use of Grantor Retained Annuity Trusts should be discussed with your estate planning attorney. Review your current estate plan to see if it is prepared for whatever changes occur. Prepare documents for execution, if needed, to avoid last-minute delays if the law does not sunset.

Possible Economic Changes. Whenever a new president takes office, there are concerns about the impact on the economy. This year is no different. This is the time to stress-test portfolios for market volatility and how it might impact estate liquidity and funding for taxes and charitable bequests. Review asset allocations to ensure that assets are shielded from market fluctuations and creditors.

Emerging Trends in Digital Assets and Technology. Estate planning today must include planning for the management and disposition of digital assets as well as traditional assets. Numerous platforms are now used to centralize and manage digital assets so owners and their executors can more easily manage assets after the owner's death. Estate plans must also address cryptocurrency to avoid losses because of a lack of planning.

Charitable Bequests are on the Rise. Charitable giving is more common than before and is integrated into tax planning for estate plans. An experienced estate planning attorney will work with you to identify qualified charitable organizations with meaning to you and determine your goals for charitable giving. Charitable Remainder Annuity Trusts provide fixed income for beneficiaries and generous donations to nonprofits.

Being proactive about your estate plan protects and preserves wealth, but it must also be strategic, positioning the individual and their family to thrive over time and during changes. Schedule a review of your estate plan to ensure that it meets your needs in 2025.

Reference: Forbes (Jan. 2, 2025) “The 2025 Theme for Estate Planning: Be Prepared”

Do You Need a Will or a Trust?

The start of a New Year is accompanied by wishes to make life better. Planning for the future and protecting the family means addressing your estate plan. A recent article from Parkland Talk, “Start the New Year Right: Why Estate Planning Should Be Your Top Resolution for 2025,” explains the basics of estate planning.

Everyone should have a will, a document setting out instructions for the disposition of your estate after you have died. For many families, a trust is part of an estate plan. This is a document creating a separate legal entity that takes effect once the trust is created. Trusts are used to own and manage assets during and after life. With a trust, you can assign another person to take care of assets in the trust if you become incapacitated.

Wills and trusts are very different legal documents, performing different tasks. The trust is effective while you are living and after you have died, while a will is only executed after you have died. For most people, both a will and a trust make up the foundation of an estate plan. Here are some of the differences:

A will and the property bequeathed in the will are subject to probate, while assets in the trust don’t go through probate.

Wills become part of the public record and can be read by anyone. At the same time, trusts remain private, their contents known only to the estate planning attorney who created them, the grantor—the person who created the trust—and the beneficiaries.

Wills are used to name a guardian for minor children.

Trusts let you control when and how minor children, grandchildren, or other beneficiaries receive assets in the trust.

You manage property in your will, while the trustee manages assets in the trust. An irrevocable trust is managed by the named trustee, while the grantor may be the trustee of a revocable trust.

A court does not get involved with the trust, while the executor, the person named to carry out the instructions in the will, is court-supervised during probate.

A will is only effective upon the death of the testator, the person creating the will. There are no provisions in a will for what should happen if the person should become incapacitated because of illness or injury. The trust is a tool for incapacity.

Both the will and trusts have their uses in a comprehensive estate plan. An experienced and knowledgeable estate planning attorney will help create an estate plan to best suit your needs.

Reference: Parkland Talk (Jan. 6, 2025) “Start the New Year Right: Why Estate Planning Should Be Your Top Resolution for 2025”

How to Choose a Successor Trustee?

Trusts are a popular estate planning tool, allowing for control and protection of assets and tailored to meet specific needs. A trust requires both a trustee or successor trustee, says a recent article from Kiplinger, “You’ve Got a Trust: Now Who Should Be the Successor Trustee?”

If you have an irrevocable trust, you might want to have two different people to serve as trustees. The investment trustee is in charge of managing the investments in the trust, while the administrator trustee manages the operations aspect of the trust. One person could perform both roles, but having two people may provide a second layer of oversight. Irrevocable trusts require the grantor to give up control of the assets in the trust, which may be more acceptable when two people are in charge of the trust.

Revocable or living trusts allow the grantor to be a trustee and have complete control over the trust. A successor trustee is named so someone can take over the trust if the grantor is incapacitated or dies.

The grantor may again choose to have two trustees. One can be the trustee in case of incapacity, and the second can be the trustee when the grantor dies. If you name an adult child as your executor and they are also the trustee of your revocable will, one person is responsible for everything. Dividing the roles could lighten the load for busy adult children. If a trustee lives far away, it may be challenging for them to act on your behalf during incapacity and you may wish someone more local to serve in this role.

Successor trustees have a number of duties. They have a fiduciary duty to identify and protect trust assets, pay bills, oversee finances, manage investments, manage the distribution of trust assets, file tax returns, make tax elections and manage any legal or financial issues relating to the trust. Depending upon the size of the trust, this could be a time-consuming responsibility.

Before automatically naming the eldest child to serve as successor trustee, take some time to think about whether or not they are the best person for the job. If the trust estate is passing to the children and the successor trustee’s role will be simple—dividing assets evenly among beneficiaries—this might be an easy decision.

Suppose there are more complex matters, like a distribution being held back because one of the beneficiaries is a minor or has a drug dependency issue, and distributions are at the discretion of the trustee. In that case, the trustee may face repercussions from family members.

Naming a successor trustee is like choosing someone to serve as your executor. They have to be honest, organized, good with financial matters, and able to communicate with heirs even when there’s little or a lot of resentment about their being in charge. They must also be available to interact with your professionals, including an estate planning attorney, financial advisor and accountant. There are instances when a bank, private fiduciary, or estate planning attorney may be a better choice for a successor trustee.

Your estate planning attorney can help you sift through the personalities and skill sets of possible trustees to determine the best candidate for the job.

Reference: Kiplinger (Dec. 18, 2024) “You’ve Got a Trust: Now Who Should Be the Successor Trustee?”

What Is the Great Wealth Transfer?

You’ve undoubtedly heard the expression “The Great Wealth Transfer” in recent months. However, what does it mean for you and your family? A recent article from The Street, “The Great Wealth Transfer: Strategies for Beneficiaries,” explains how the anticipated transfer of more than $84 trillion will impact families.

Between 2020 and 2045, a massive amount of wealth is expected to transfer from baby boomers to Generation X, millennials and Generation Z. As more people live longer and wealth from increases in home equity and investments, the assets will eventually be passed across generations. How wealth has been transferred to heirs has changed, drawing the attention of estate planning attorneys and financial advisors.

In the past, wealth was typically created through owning a family business or inheritances from multiple generations. Today’s wealth takes many different shapes, including investment growth, home equity, cryptocurrency and retirement accounts. Inheritances are more likely to come from a complex financial portfolio than from inheriting a farm or family business.

Attitudes about inheritances and money are also shifting. Millennials and Gen Z members have grown up in times of economic instability and may be less focused on stewarding wealth for the next generation. These generational differences may create family stresses, which can be avoided through estate planning and family discussions. Open conversations about these differences can prevent surprises or assumptions.

Minimizing or avoiding taxes and unnecessary expenses is always part of estate planning. Trusts are used to minimize both estate taxes and probate costs. Using a revocable living trust allows the trust creator to control assets during their lifetime and avoid having assets go through probate after death. Using an irrevocable trust also removes assets from the estate and can be used in planning for other needs, like a Medicare Asset Protection Trust.

Gifting with warm hands, or giving during your lifetime, is a way to reduce the size of a taxable estate and enjoy seeing the impact of a gift on a family member or beloved friend. In 2024, individuals may gift as much as $18,000 per recipient yearly without incurring gift tax. This reduces the taxable estate considerably, as there is no limit on the number of recipients a person can give a gift to.

A step up in basis lets the value of inherited assets be “re-set.” Someone inheriting a stock portfolio worth $100,000 at its inception but now worth $1,000,000 has a new cost basis. When you sell the asset, you will save substantial capital gains taxes upon the sale of the asset. The new cost basis is the $1 million valuation, not the $100,000 purchase price. Talk with your estate planning attorney about how to best manage this kind of transfer if it is in your future to obtain the best possible results.

Working with the right professionals can make an enormous difference when managing wealth is new. An estate planning attorney with knowledge of wealth transfer laws and tax planning can prevent heirs from being blindsided by unexpected taxes.

Reference: The Street (Oct. 28, 2024) “The Great Wealth Transfer: Strategies for Beneficiaries”

Selling Your Business? Plan Early!

If you own a business and plan to sell it eventually, you’ll want to maximize the resulting profits. Start early, says a recent article, “Is the Sale of a Business in Your Future? Be Informed. Plan Early,” from Inc., because it can take years to prepare a business for a successful sale.

A few factors to consider:

• Understand the multiples used by your peer groups and why some companies sell for higher prices than others.
• Adapt and evolve your business, so it achieves a higher value at the time of sale.
• Work with an estate planning attorney and tax adviser to optimize both long-term tax efficiency and financial security after the business is sold, whether for retirement or your next venture.
• Create a plan aligned with goals and values for the capital created when the business is sold.

Understand the value of your business. Key performance indicators (KPIs) reflect more than your sales and overhead costs. Industry trends, potential risks, opportunities and financial and operational health are all concerned. Cash flow matters, as do interest coverage, days sales outstanding, inventory turnover, return on equity and cash flow to revenue. So does customer concentration risk and the management structure in place now and in the future.

How does your company stack up compared to your competitors and industry averages? Planning for the sale of a business requires regular assessment of all these metrics, making the changes needed to improve the value of the business, and continuously measuring and evaluating.

Estate planning protects profits. Today’s historically high estate exemptions, due to sunset in 2026, could play an essential role in whether you plan on selling the business soon. Everyone has a lifetime exemption allowing them to transfer assets during their lifetime or after death without incurring federal estate or gift taxes. In 2024, the lifetime exemption is $13.61 million. Unless Congress acts to renew this level, it will revert to approximately $7 million as of January 1, 2026.

Consider this example: a married couple with a net worth of $50 million has never used any part of their lifetime exemption. With no estate planning, they die in 2026, and the exemption is $7 million. Their combined estate tax liability could be $14.4 million.

Working with an estate planning attorney to prepare to take advantage of the exemption, the couple could use their full lifetime exemption in 2024 or early 2025 by creating irrevocable trusts to benefit each other and their children or grandchildren. With the guidance of an experienced professional, they can transfer a combined $27.22 million into irrevocable trusts, taking this significant amount out of their taxable estate. With planning, they could avoid paying more than $5 million in federal estate taxes.

This is a simplified version of one strategy available. Business owners also have other opportunities to obtain discounts on assets for valuation purposes,

Estate planning attorneys are already working with clients to prepare for the end of these exemption rates. As 2025 progresses, you’ll want to contact your own estate planning attorney sooner rather than later. Discuss your timeline for selling your business in light of these changing exemptions, which may turn out to be a significant factor.

Reference: Inc. (Oct. 28, 2024) “Is the Sale of a Business in Your Future? Be Informed. Plan Early”

Can an Irrevocable Trust Be Changed or Ended?

Headlines around Rupert Murdoch’s estate battle concern his wish to change an irrevocable trust to give one son an elevated role and more control of his empire. The other siblings have taken their father to court. According to a recent article from Market Watch, “No trust is set in stone. Even irrevocable trusts can have some wiggle room.” What does this mean for regular people who want to change irrevocable trusts?

Trusts are legal structures in which the person creating the trust, the grantor, passes assets to another person or entity, referred to as the beneficiary. Revocable trusts can, as their name implies, be changed by the grantor at any time. Trusts are used to pass wealth to heirs, pass assets without needing to go through probate, maintain privacy and remove assets from the taxable estate.

Irrevocable trusts are intended to be permanent and transfer control of assets when they are created. Many are used for tax planning, while others help families to help a parent become eligible for Medicaid. For blended families, irrevocable trusts ensure that assets are distributed to spouses and biological children as per the wishes of the grantor.

Despite the name, there are ways to make changes to irrevocable trusts by knowledgeable estate planning attorneys. For new irrevocable trusts, careful drafting of the trust with built-in flexibility is critical. Some common provisions today are for the grantor to have the ability to change the trustee, amend terms, change beneficiaries and even revoke the trust.

If the original grantor is incapacitated or dies, a “trust protector” can be named to change the trust.

Decanting the trust is another way to make a change. Just as it sounds, this process involves having the assets in one trust decanted (or poured) into another trust. One example is if a family has created a multi-generation irrevocable trust, and the next generation includes a person with substance abuse issues. The family doesn’t want this person to have access to large sums. The trust is “decanted,” and assets move from the original trust to another with more restrictive provisions.

Consult with an experienced estate planning attorney to be sure that any changes to an irrevocable trust align with your state’s laws. If you are creating a new irrevocable trust, discuss having flexibility built into the trust.

Reference: Market Watch (Sept. 28, 2024) “No trust is set in stone. Even irrevocable trusts can have some wiggle room.”

How Does Grantor Trust Status Have an Impact on Step-Up in Basis and Estate Tax Exclusion?

If you’re considering establishing an irrevocable trust as part of your estate plan, you’ll want to understand how the trust will affect your capital gains taxes and estate tax exclusions. According to a recent article, “This Double-Dip Trust Benefit Really Is Too Good to Be True,” from Kiplinger, there is no double dip. Here’s why.

An irrevocable trust could be considered a grantor trust, meaning the person who made the trust will be regarded as the owner of the trust’s income or principal. The grantor will include trust income, deductions and credits on their own personal taxes, despite the trust not distributing the income to the grantor and the income remaining within the trust. Taxes for personal income are usually lower than trust tax rates, which is one of many reasons to use grantor trusts.

The IRS issued Revenue Ruling 2023-02 in early 2023 as a clarification. Suppose that assets in an irrevocable trust are excluded from the grantor’s gross estate. In that case, estate-excluded assets do not get a step up in basis for capital gains tax under Internal Revenue Code Section 1014, even if the grantor was paying income taxes on the trust income as described above.

The ruling was intended to clarify the confusion surrounding different tax rules: income tax rules, capital gains tax rules and gift and estate tax rules. This wasn’t really a big change; it was just a much-needed clarification

Experienced estate planning attorneys already knew the rule: property transferred to an irrevocable trust under a completed gift doesn’t qualify for a step-up in basis for capital gains tax savings, even if the grantor pays the taxes on the trust.

The people surprised by the ruling believed—wrongly—they could pay trust income taxes under the lower individual tax rates and exclude property from their gross taxable estate, while also gaining a step-up in basis on capital gains taxes.

Using the trust as a grantor so the trust maker pays the trust taxes has never been a valid means of stepping up the basis in completed-gift trust assets outside of the grantor’s gross estate.

Creating a solid estate plan using acceptable strategies with an experienced estate planning attorney will prevent future tax issues for the estate and heirs, which are far more expensive than doing it right the first time.

Reference: Kiplinger (Sept. 15, 2024) “This Double-Dip Trust Benefit Really Is Too Good to Be True”