Upcoming estate tax law changes in 2025 could impact your financial planning and strategies to minimize tax liabilities. Key changes to be aware of include increased federal estate and gift tax exemptions, a higher annual exclusion for gifts, and the sunset of the Tax Cuts and Jobs Act (TCJA).
Your year-end gifting and estate planning strategies should take these updates and estate tax law changes into account. Discover the tax implications of increased estate and gift tax exemptions, how the estate tax law sunset 2025 may affect you, and strategies you can implement to stay ahead of the upcoming changes and protect your wealth below.
Key Changes in Estate Tax Laws for 2025
Among the most notable estate tax law changes in 2025 is the expected estate and gift tax exemption increase. As part of annual IRS tax inflation adjustments, this increase affects the total tax-free amount taxpayers can give to heirs in their lifetime.
What will the federal estate tax exemption be in 2025?
The exemption is set to rise from $13.61 million to $13.99 million per individual. Estates worth up to $13.99 million will now be shielded from federal taxes, so heirs of estates worth $13.99 million or less in 2025 will not owe federal taxes on estate inheritances.
How much is the federal estate and gift tax exemption expected to increase in 2025?
The federal estate and gift tax exemption is expected to increase by $380,000 in 2025. Though the increase is significant, it’s considerably less than the jump from 2023 ($12.92 million) to 2024 ($13.61 million), which represented a $690,000 increase.
How else will estate laws change in 2025?
Other estate tax law changes in 2025 include an increased annual exclusion for gifts, rising from $18,000 in 2024 to $19,000 per individual in 2025. As a result, taxpayers can give up to $19,000 annually tax-free to recipients without cutting into their lifetime gift and estate tax exemption amount ($13.99 million in 2025).
Note that these adjustments, including gift and estate tax law changes in 2025, will apply to income tax returns that will be filed in 2026.
Understanding the 2025 Sunset Provision
Changes to estate and gift tax exemptions are not the only shifts occurring in the tax landscape for 2025. The estate tax law sunset 2025 will bring the expected end of the Tax Cuts and Jobs Act (TCJA), currently planned for December 31, 2025. If legislation does not change before then, tax-free estate and gifting amounts will be halved. The TCJA temporarily doubled the estate and gift tax exemption and was in place from 2018 through 2025.
Once the current TCJA provisions expire, the estate and gift tax exemptions will return to their 2017 levels, adjusted for inflation. The exemptions would be around 50% lower than current amounts: about $7.5 million for individuals, or $14.5 million for a married couple. What does the sunset of the Tax Cuts and Jobs Act mean for estate planning? The estate tax law sunset means the window to gift large amounts to your heirs may be closing, making it essential to revisit your gifting strategies for 2025.
The Importance of Year-End Gifting
Year-end gifting is a vital part of estate planning. With the new annual gift exclusion amount of $19,000 per individual in 2025, it will be beneficial to gift as much of that amount to your heirs as is realistic during 2025 to avoid triggering the gift tax or eating into your lifetime estate and gift tax exemption.
Consider transferring assets sooner rather than later—before the 2025 estate tax law sunset is expected to take effect—to optimize your gifting. Remember that your investment portfolio, including your home and other real estate, could also be affected by the TCJA sunset. Take these considerations into account in the calculations of your taxable estate, along with your current income, projected lifetime income, and long-term living expenses. These factors will help you determine specific amounts to give ahead of the sunset.
Planning for the Future
By planning around upcoming gift and estate tax law changes, you’ll be able to optimize gifting to strategically transfer wealth and take advantage of the higher exemptions effectively. It’s critical to gift in a way that leaves you financially secure through your retirement years.
Financial planning guidance will help you adjust and optimize your gifting strategies for 2025 to protect your wealth and maximize your assets. At MyStages®, we understand the complexities of estate tax laws and the importance of strategic planning. Schedule a consultation with our financial planners today.
