Estate Tax Planning for 2025: Key Considerations and "Double Exemption"

The 2025 tax year presents important considerations for taxpayers with estate plans. New and expiring tax legislation may materially impact existing estate and gift plans.

This means time is of the essence because planning opportunities may close by the end of 2025. Taxpayers should revisit their individual estate plans this year and confer with their tax professionals on planning opportunities.

Background of the TCJA and the “Double Exemption”

Under current law, U.S. taxpayers may generally gift assets up to the basic exclusion amount (sometimes also referred to as the “exemption amount”), either during their lifetime or at death, without federal gift tax or estate tax consequences.

Assets gifted in excess of the basic exclusion amount are generally taxed at a 40% rate. Any unused basic exclusion amount of a deceased spouse may be transferred to a surviving spouse (which is generally called “portability”), allowing the surviving spouse to make additional future transfers free of gift and estate taxes.

A separate generation-skipping transfer (GST) tax can be levied to limit multi-generational transfers of wealth. There is also a separate GST exemption, but the GST exemption is not portable between spouses.

Since 2017, the Tax Cuts and Jobs Act (TCJA) has provided for a temporary doubling of the basic exclusion amount from $5 million to $10 million, adjusted annually for inflation. In 2025, the basic exclusion amount has risen to $13.99 million per taxpayer. Thus, a U.S. married couple (under current law in 2025) can make gifts of up to $27.98 million without incurring any federal gift or estate taxes.

Without a legislative extension, the double exemption provisions expire on December 31, 2025, cutting estate and GST exemptions in half, resulting in a reduced exemption amount in the estimated range between $7 million and $7.25 million beginning on January 1, 2026.

November 2024 Election: Estate Planning Impacts

The Trump administration campaigned to extend or make permanent many TCJA provisions, including the double exemption. While Republicans control Congress and the White House, their majority in Congress is thin, meaning passage of significant legislation is inherently uncertain. Congressional Republicans and the Trump administration have also campaigned on several new tax cuts (such as no tax on tips, overtime, or Social Security), along with the extension of the TCJA and the double exemptions. The total fiscal impact of such measures is still being considered. These competing tax and legislative priorities could prove difficult to resolve with the looming scheduled “sunset” of the TCJA. So, there is the potential of the sunset occurring at the end of 2025 and the reduction of exemption amounts.

Proactive Estate, Gift, and GST Tax Planning Considerations in 2025

Taxpayers should begin now to confirm their estate plans are specifically tailored to their needs considering possible material legislative changes. Below are a few of the possible legislative outcomes concerning the double exemption:

Taxpayers Below or Well-Below the “Double Exemption”

Taxpayers who currently are below (or well-below) one-half of the double exemption amount (approximately $7 million for individual taxpayers or $14 million for married couples) are less likely to be impacted by potential tax law changes with the TCJA or extension of exemption amounts.

In general, taxpayers in this range can benefit in basis “step-up” planning, because upon death tax basis is increased to FMV, eliminating any taxable gain existing at date of death. Even if estate or gift tax issues are not present, a comprehensive and well-designed estate plan can benefit taxpayers in this group.

Taxpayers Near or Over the “Double Exemption”

Taxpayers near or over the double exemption ($13.99 million for an individual or $27.98 million for a U.S. married couple) may consider gifting, selling, or transferring assets to irrevocable grantor trusts and utilizing other tax-planning strategies, including the use of so-called “stand-by trusts” to be ready to make transfers if circumstances warrant. There are also other structures that taxpayers can use to position themselves to make quick decisions at the end of the year (or potentially in subsequent years). Taxpayers should be proactive with their estate planning, as tax advisors and estate planning attorneys may have limited time to facilitate such transfers at the end of 2025.

Taxpayers Above or Well-Over the “Double Exemption”

Taxpayers in the high-net-worth range (in other words, well-above $13.99 million individually, or over $27.98 million for a married couple) should continue to proactively plan and consider potential tax-efficient strategies to minimize and mitigate estate, gift, and GST taxes, including maximizing charitable efforts.

While repeal of the estate tax is technically possible, for many taxpayers, the likelihood of repeal does not outweigh the many tax-planning and asset-preservation benefits offered by trusts and other structures.

Estate planning is not a one-size-fits-all exercise. Taxpayers should individually consult with their tax advisors and estate planners regarding the current value of their assets and any anticipated changes.

State Law Considerations

Taxpayers should also account for any potential state-level estate or inheritance taxes. In several jurisdictions, exemptions are lower than the federal basic exclusion amount. Currently, 12 states and the District of Columbia impose a separate estate tax, and 5 states impose an inheritance tax. It is critical to ensure your estate plan is appropriately customized to your specific jurisdiction and circumstances.

Why You Should Be Considering Estate Planning Right Now

Taxpayers are encouraged to revisit their current estate plan in 2025 in light of possible changes. Additionally, taxpayers may want to prepare to make changes to their estate plan (whether or not the TCJA’s provisions are extended) in a timely fashion.

Our Wealth Transition Services team can help you determine what if any, actions should be taken now to ensure your estate plan aligns with your goals and objectives.