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Exclusions, Exemptions, Estate Tax – What to Know in 2025

As we enter 2025, it’s important to stay informed about the current federal estate and gift tax laws, including annual exclusion limits and significant changes anticipated by the end of this year.

Annual Exclusion Amount

The annual exclusion amount for gifts in 2025 allows individuals to give up to $19,000 per recipient without incurring gift tax or needing to file a gift tax return. This exclusion is a valuable tool for wealth transfer and estate planning, as gifts within this limit do not count against your lifetime exemption amount.

Estate and Gift Tax Exemption

The federal estate and gift tax exemption for 2025 remains historically high at $13.99 million per individual. This exemption permits significant wealth transfers without triggering federal estate or gift taxes. Married couples can combine their exemptions, effectively shielding up to $27.98 million from taxation.

Sunset of the Current Exemption

The current exemption levels are set to sunset at the end of 2025. If no legislative action occurs, the exemption amount will revert to pre-2018 levels, estimated at approximately $7 million per individual (adjusted for inflation). This reduction could significantly impact estate planning strategies, potentially exposing more estates to federal estate tax liability starting in 2026.

Planning Considerations

Given the scheduled sunset, 2025 presents a strategic window to utilize the historically high exemption amounts. Potential strategies include:

  • Lifetime Gifting: Maximize the use of your lifetime exemption through substantial gifts before the reduction.
  • Irrevocable Trusts: Consider establishing irrevocable trusts to transfer wealth outside of your taxable estate.
  • Spousal Planning: Use spousal lifetime access trusts (SLATs) to preserve wealth while maintaining indirect access to gifted assets.
  • Charitable Planning: Consider charitable donations and charitable remainder trusts to support causes you care about while reducing your taxable estate.

Review your current estate plan with our office to see how these changes may impact your financial goals. Proactive planning can help minimize tax liability and protect your legacy for future generations.

For questions or to schedule a consultation, contact Lisa Paine today.

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