The Danger of Planning Too Far Ahead
When I first started drafting estate planning documents in the 1990s, the federal estate tax exemption was only $600,000 per person. Even life insurance death benefits were included in your taxable estate. As a result, many middle-class families needed fairly complicated estate plans just to avoid estate taxes.
Today, the federal estate tax exemption for a married couple is nearly $30 million. That’s a remarkable change in a relatively short period of time — and a reminder that tax laws can change dramatically.
Years ago, I attended an estate tax planning class at Emory University taught by a respected trust and estate law professor. He advocated intentionally paying some estate tax at the death of the first spouse, even though the law allowed families to defer the tax until the second spouse’s death. His math was sophisticated and convincing. The problem? He never anticipated Congress drastically increasing the estate tax exemption. Some families who followed his advice ended up paying estate taxes they ultimately may never have owed.
We saw something similar with the Tax Cuts and Jobs Act of 2017. Because the law was originally scheduled to expire in 2025, many wealthy families rushed to make very large gifts to family members before the exemption potentially dropped. Then the law changed again. With the return of President Donald Trump and the passage of the “One Big Beautiful Bill,” many of those larger exemptions did not expire, but instead became permanent. Some families later realized they may not have needed to move assets so aggressively after all.
The lesson is not that tax planning is unimportant. Taxes matter enormously. The lesson is that predicting what tax laws will look like 10 or 20 years from now is incredibly difficult.
Good planning often means preserving flexibility and keeping your options open — because sometimes the world changes faster than the plan. Whenever you are considering a tax planning technique that’s related to estate or income taxes and the benefits that are touted are many years in the future, make sure you add in a healthy dose of flexibility to the strategy. As the Danish physicist Niels Bohr once said: “Prediction is very difficult, especially if it’s about the future.”
Fun Fact: For those of you who might remember me warning about private equity getting involved in youth sports, local news is reporting that a $3 billion youth sports campus is being planned in Romulus. The proposed development would reportedly span 452 acres and include an 11,000-seat arena, dozens of basketball and volleyball courts, and four hockey rinks. Youth sports are clearly becoming big business for those who can afford it!
