2025 Estate and Gift Tax Exemption Increases
For 2025, the estate and gift tax exemptions have seen a notable increase. Here’s a breakdown:
Estate Tax Exemption: Individuals can now exempt up to $13,990,000 from estate taxes. For married couples, this amount effectively doubles to nearly $28 million, allowing them to pass on substantial wealth without triggering estate tax.
Gift Tax Exemption: The annual exclusion for gifts has also risen, allowing individuals to give up to $19,000 per recipient this year without incurring any gift tax. Additionally, the lifetime gift exemption is aligned with the estate tax exemption, meaning the total amount you can gift without facing tax liabilities has also increased.
These increases present an opportunity for individuals to pass on more wealth to heirs tax-free. Whether through gifts during your lifetime or through your estate after death, these exemptions can provide significant tax savings.
The Potential for a Sunset: What Does it Mean?
While the increased exemption amounts provide significant benefits, there is still uncertainty regarding their long-term stability. Under current law, these increases are set to expire in 2026, unless Congress acts to extend them or make them permanent. This “sunset” means that the estate tax exemption amount could revert to lower levels, which adjusted for inflation, experts anticipate will be around $7 million per individual.
This looming uncertainty makes it critical for individuals with larger estates to consider their options sooner rather than later. If you're thinking about making substantial gifts or planning your estate, now may be an ideal time to take advantage of these higher exemptions before the potential sunset occurs.
Planning for the Future
Given the possibility of a sunset, it’s essential to plan strategically. If your estate exceeds the current exemption amounts, you may want to consider:
Making gifts now: Take advantage of the higher gift tax exemptions by gifting assets during your lifetime. This can reduce the size of your taxable estate and minimize future estate taxes.
Setting up trusts: Utilizing trusts can help you pass on wealth while reducing the tax burden on your estate, especially if the exemption amounts are reduced in the future.
Regularly reviewing your estate plan: Keep an eye on potential changes to tax laws, and work with an estate planner to ensure your strategy remains effective.
Final Thoughts
The 2025 estate and gift tax exemptions provide significant opportunities for wealth transfer, but the potential for a “sunset” in 2026 means there’s no time like the present to start planning.