Estate Tax Changes in 2025

Understanding the anticipated changes in tax laws and regulations in 2025 will become increasingly crucial. One area that requires attention is the estate tax sunset at the end of 2025.

The estate tax, also known as the inheritance, death, or wealth transfer tax, is a levy on transferring an individual's property to heirs upon death. Those intending to pass assets must understand how their estate and heirs may be impacted after 2025.

Understanding estate taxes in 2025

The estate tax has been revised numerous times since its introduction over a century ago. However, the sunsetting provisions outlined in the Tax Cuts and Jobs Act (TCJA) of 2017 indicate noteworthy transformations in the estate tax context for 2025 and thereafter.

Under the TCJA, an individual's estate receives a $13.99 million lifetime exemption from federal estate taxes in 2025- married couples can double that amount. However, if the current administration does not revise this estate tax legislation, it will sunset on December 31, 2025 to approximately half.

How the 'step-up' basis works

Another key point surrounds the "step-up in basis," a rule that mitigates tax burdens on inherited assets. If an asset appreciates during the owner's life, the beneficiary receives it on a stepped-up basis equivalent to the market value at the date of death, resulting in higher estate taxes. However, many anticipate that this lenient provision may face alterations or even a repeal in 2025, significantly impacting tax liabilities surrounding estate transfers.

Future legislation and taxes

The potential for additional modifications to the estate tax rules may impact estates. Proposals to significantly lower the estate tax exemption amount and increase the estate tax rate, currently at a flat 40%, have previously failed but may be reintroduced. Given these potential shifts, it becomes imperative to have well-structured estate plans that adapt to the anticipated changes.

Planning now is key

Estate planning requires a proactive approach, anticipating future changes in the estate tax landscape. Monitoring proposed legislative changes to mitigate potential tax liabilities and work toward the smooth transfer of wealth to heirs is crucial.

Engage with financial, legal, and tax professionals to assess your situation, understand the implications of the estate tax sunset, and plan accordingly anticipating the estate tax sunset on 12/31/2025.