Estate Planning: Your Guide to Creating and Reporting Gifts

At the 59th Annual Heckerling Institute on Estate Planning, Christine S. Wakeman, George D. Karibjanian, and Beth Shapiro Kaufman presented gifting ideas for 2025 and the complications in reporting such gifts to meet IRS requirements.  

How to Manage Estate Planning 

Estate planning involves more than drafting wills and trusts. It involves strategically managing assets to minimize taxes and maximize wealth transfer. The 2017 Tax Cuts and Jobs Act’s doubled the basic exclusion amount expires on December 31, 2025; individuals should act now to secure their exemptions.  

Taxpayers should not wait any longer to start the gifting process because implementing it can take months. 

Key strategies to integrate this process include: 

• Revocable and Irrevocable Trusts: Taxpayers can use trusts to control asset distribution and potentially reduce estate taxes. Using a revocable trust to make a gift in trust with terms that turn the trust into irrevocable on December 31, 2025, will grant taxpayers time to make final decisions. The document assigning an interest to the trust could create an incomplete gift transfer. For example, the client could create an assignment agreement stating that the transfer is fully revocable by the transferor until 11:59 PM on December 31, 2025. Per Treas. Reg. § 25.2511-2(f), this technique should also work to frontload the work and allow the client the maximum amount of time to change their mind in the event of legislative change. If the client gets cold feet before the date the transfer becomes irrevocable, they can pull the plug on the transfer by revoking it. 

• Grantor Trusts: Taxpayers may wish to seed grantor trusts with gifts and sales to achieve tax-efficient asset growth. 

• Gift Splitting: Couples can maximize exemptions by splitting gifts, allowing for larger tax-free transfers. 

Tax Planning in an Evolving Legislative Landscape 

Proactive planning is crucial as uncertainties about legislative changes affecting marriage equality and tax exemptions leave families feeling stressed and worried. Families with significant assets should consider the following: 

• Spousal Lifetime Access Trusts (SLATs): Allow one spouse to create a trust benefiting the other, ensuring financial security while reducing taxable estates. 

• Qualified Terminable Interest Property (QTIP) Trusts: These trusts provide life income for a surviving spouse while preserving assets for children or other beneficiaries. 

• Generational Planning: Taxpayers can protect their wealth from potential legislative changes by proactively transferring assets strategically to their children and grandchildren before any changes take effect. 

These tools can provide asset protection and tax efficiency for families concerned about legislative shifts 

Trusts and GST Tax Implications 

Trust structures can safeguard wealth for future generations but require careful consideration of generation-skipping transfer (GST) tax rules. Key takeaways include: 

• Life Insurance Trusts: Often funded with annual exclusion gifts, these trusts require careful management to avoid unintended GST implications. 
• Crummey Powers: These grant trust beneficiaries the right to withdraw gifts to make sure that contributions qualify for annual exclusions; however, they need precise documentation. 
• GST Exemptions: Filing accurate gift tax returns and opting out of automatic GST allocation can preserve exemptions for appropriate uses. 

Private Equity in Estate Planning 

Private equity assets present unique opportunities but demand meticulous planning and execution. For those holding closely held business interests or private equity assets, defined value clauses and appraisals are pivotal. Strategies include: 

• Defined Value Clauses: Minimize tax exposure by limiting gifts to predetermined values, with excess transferring to charities. The language from the Wandry Case is often used but can be complicated and ineffective if not used correctly. 

• Closely Held Interests: Gifting LLC or partnership interests requires precise valuation to comply with IRS standards to meet the adequate disclosure requirements. 

• Planning for IRS Challenges: Utilize modern case law to navigate the complexities of valuation disputes. 

Navigating Gift Tax Appraisals and Disclosure 

Accurate appraisals and disclosures are essential for gift tax compliance. When navigating this process, consider: 

• Qualified Appraisals: Taxpayers should confirm appraisals meet IRS standards to achieve adequate disclosure and start the statute of limitations.  

• Statute of Limitations: This could be extended from three to six years if the IRS challenges a value and the valuation is more than 25% lower than the IRS’ final determination. Taxpayers should prepare for the SOL to be treated as six years for discounted asset gifts.  

• Adequate Disclosure: To avoid prolonged IRS scrutiny, taxpayers must provide detailed descriptions of valuation methods. They may rely on IRS Treas. Reg. §301.6501-1(f)(3) to meet adequate disclosure requirements, but this could cost more than a qualified appraisal because of the voluminous steps in the regulations that must be addressed. 

• Voluntary Disclosure Programs: Taxpayers and practitioners should look into how to address past non-compliance proactively to mitigate penalties. 

The panel drew attention to recent Tax Court decisions, emphasizing the importance of precise documentation and adherence to appraisal standards. 

Effective estate and tax planning requires a comprehensive approach that combines legal, financial, and tax expertise. By utilizing trusts, leveraging legislative opportunities, and adhering to IRS requirements, families can secure their wealth for future generations while minimizing tax burdens. Contact us below to start planning and preparing for changes in 2026 and beyond.