2025 Planning Review and Year End Planning Tips

Roth Conversions as Strategic Wealth Transfer

Most discussions about Roth conversions focus narrowly on tax bracket management. The panel explores something more significant for high-net-worth families. In states like Connecticut, Maryland, and Massachusetts, the intersection of state estate tax and federal income tax creates the "missing 691(c) deduction." When someone dies in these states with a traditional IRA, the state estate tax paid cannot be deducted when computing federal income tax on the inherited IRA. Combined with the "fading 691(c) deduction" as IRAs grow, Roth conversions can deliver thirty to forty percent more wealth to beneficiaries. The asset protection dimension also deserves attention. Converting an IRA and paying the tax from non-retirement assets effectively moves unprotected dollars into creditor-protected accounts. Multi-state considerations add another layer. A client living in Illinois with a twenty-million-dollar IRA whose son lives in California can convert in Illinois tax-free, and the son receiving the Roth in California never pays that state's thirteen percent tax on distributions.

The Canon Gain Problem and Section 645 Elections

This year's market appreciation, particularly in technology stocks, brought renewed attention to the Canon gain problem. When trust documents specify pecuniary bequests and assets appreciate between death and funding, that appreciation creates taxable gains. The problem intensifies with trusts because under Section 267, trusts cannot net capital gains against losses the way estates can. A trust with one million dollars in gains and one million dollars in losses cannot offset them when funding pecuniary bequests. The solution lies in making a Section 645 election, which brings the trust into the estate world for income tax purposes. The panel recommends making this election in ninety percent of cases, working proactively with CPAs rather than discovering the problem after funding occurs. The discussion also addresses alternate valuation dates, which may see renewed relevance if market volatility shifts from appreciation to decline.

Portability and Family Loans: Lessons from Recent Cases

This summer's Rowland decision reinforces that portability requires complete documentation. A family lost four and a half million dollars in portable DSUE because they failed to include adequate valuation information on their estate tax return, costing them approximately one and a half million dollars in estate taxes. Professional appraisals for closely held business interests and real estate are not optional, even when filing solely for portability with no current tax due. The panel notes they continue to see missed portability returns weekly, including a particularly difficult situation where someone died in 2013 and their attorney did not advise filing for portability because they exceeded the exemption at that time. Years later, with higher exemptions, the family discovered they had lost the deceased spouse's exemption forever.

The Galli case offers guidance on family loans. What saved the taxpayer was consistent treatment: bank records showing the transfer, annual interest payments, proper tax reporting by the mother, and a properly executed note. The court emphasized that the parties consistently respected the transaction's form through their actual conduct. The panel offers practical year-end advice to contact clients with outstanding loans and confirm interest payments are current for 2025. If payments are behind, calculate make-up interest and arrange payment before year-end.

Reevaluating Trusts and New Planning Tools

Practitioners increasingly face clients questioning whether they need irrevocable trusts when their estates fall well below current exemption levels. The Delaware Tax Trap technique offers an elegant solution. By granting a beneficiary a special power of appointment and exercising it to continue the trust without regard to its original start date, Section 2041(a)(3) can pull assets back into the estate for basis step-up while maintaining trust structure and asset protection. For clients maintaining trust structures, the speakers recommend proactive preparation. Document swap powers and prepare agreements in advance. Establish lines of credit to facilitate pre-death swaps if cash is not readily available. The panel emphasizes that estate tax is not the only reason to maintain trusts. Asset protection and management for beneficiaries remain valid reasons independent of exemption amounts.

The webinar also addresses Trump Savings Accounts, allowing five-thousand-dollar annual contributions for minors with a one-thousand-dollar government match. The recommended approach is to open an account with minimal funding to capture the match, maximize 529 contributions first, then return to the Trump account if appropriate. One notable issue is that unlike 529 plans, the legislation does not explicitly provide a gift tax annual exclusion safe harbor. The panel also explores troubling implications of the tax reform bill's Section 68 changes, which appear to create situations where trusts might have to pay tax on income distributed to beneficiaries or charity. The speakers express hope that regulatory guidance will address what appears to be an unintended consequence.

AI Integration and Professional Collaboration

The panel discusses how artificial intelligence is reshaping practice efficiency. One speaker describes completing eight hours of traditional work during a forty-five minute client call using AI for transcription, document drafting, and analysis. Applications extend beyond document preparation to tax research and article drafting from webinar transcripts. The technology requires careful attention to confidentiality and verification, but represents a transformative tool for practice management.

A recurring theme is the evolving relationship between estate planning attorneys, CPAs, and financial advisors. The speakers note instances of financial advisors making estate planning decisions beyond their expertise, including situations where advisors moved assets before legal counsel was notified of a client's death. These situations raise questions about scope of practice and professional responsibility. The path forward requires clear communication about roles, early collaboration, and mutual respect for professional boundaries.

Looking Ahead to 2026

As the webinar concludes, the speakers identify key priorities for the coming year. Income tax planning must become more integrated with estate planning. Non-grantor trust planning, Roth strategies, and basis management all require income tax sophistication. Estate planners must either develop deeper income tax expertise or build stronger CPA partnerships. Continued planning remains essential despite high exemptions. The current exemption of nearly fourteen million dollars does not eliminate planning needs. Asset protection, management concerns, state estate taxes, and income tax opportunities remain relevant for many clients. Practitioners should proactively reach out to clients about loan documentation, portability opportunities, Roth conversion analysis, and trust reviews rather than waiting for clients to initiate conversations. Flexible drafting has never been more important. Documents should accommodate changing tax laws, family circumstances, and planning techniques. Powers of appointment, swap powers, and adaptable distribution standards provide the flexibility that rigid structures cannot.

The webinar reinforces that estate planning at year-end 2025 requires technical precision, market awareness, and strategic thinking. The cases and developments discussed illustrate that details matter, from Canon gain calculations to portability documentation to loan interest payments. Beyond technical compliance, effective planning requires understanding that the landscape continues to evolve.

Watch the complete webinar to explore these topics in depth and gain practical insights you can implement immediately with clients.