The Estate Tax Exemption for 2025: A Gift That Won’t Last Forever
Starting in 2025, the federal estate tax exemption will increase to $13.9 million per individual, up from $13.61 million in 2024, thanks to inflation adjustments. For married couples, this doubles to $27.8 million with proper planning.
This exemption shields a significant portion of your estate from the 40% federal estate tax, ensuring your family keeps more of what you’ve worked so hard to build. However, like the fleeting magic of the holiday season, this generous exemption won’t last forever.
A Holiday Reminder: The Sunset of the TCJA
The Tax Cuts and Jobs Act (TCJA), doubled the estate tax exemption. But like seasonal decorations, this enhancement is temporary. On January 1, 2026, the exemption is set to revert to its pre-2018 level of $5 million per person, adjusted for inflation (approximately $6.5 million).
If your estate exceeds this reduced threshold, proactive planning now can help you avoid leaving your loved ones with a significant tax bill in the future.
Your Estate Plan Wishlist: Key Planning Strategies
Before the exemption sunsets, consider these strategies to ensure your estate plan is as festive as a holiday gathering:
1. Lifetime Gifting: Spread the Holiday Cheer
The current exemption allows you to gift up to $13.9 million during your lifetime without incurring gift taxes. Gifting assets now can reduce the size of your taxable estate while helping your family enjoy your generosity sooner rather than later.
2. Portability: Sharing the Holiday Spirit
Married couples can take advantage of portability rules, allowing the surviving spouse to use the unused portion of the deceased spouse’s exemption. This ensures no part of the exemption goes to waste. Be sure to file a timely estate tax return to make this election.
3. Trust Planning: The Gift That Keeps on Giving
Consider setting up trusts such as bypass trusts, disclaimer trusts, or irrevocable life insurance trusts (ILITs). These tools not only protect assets from estate taxes but also provide flexibility and security for future generations.
4. Valuation Discounts: Wrapping Your Estate in Savings
Assets like family businesses or fractional interests in real property may qualify for valuation discounts, reducing their taxable value and preserving more for your loved ones.
A California Twist: No State Estate Tax
Unlike other states, California does not impose its own estate tax, making federal estate tax planning even more critical for residents. However, don’t forget about other tax considerations such as property tax reassessments under Proposition 19 and capital gains taxes on inherited assets.
Holiday To-Do List for Your Estate Plan
- Review Your Plan:
Work with an estate planning attorney to ensure your plan takes full advantage of the current exemption and anticipates the 2026 changes. - Consider Gifting Strategies:
Make lifetime gifts to loved ones while the higher exemption is still available. - Elect Portability:
Preserve the unused portion of your spouse’s exemption to reduce future tax burdens. - Schedule a Consultation:
The best gift you can give your family this year is a well-thought-out estate plan.
The Greatest Gift: Peace of Mind
This holiday season, give your family the priceless gift of financial security. The 2025 estate tax exemption presents a limited-time opportunity to protect your wealth and plan for the future. Whether through gifting, trust strategies, or valuation discounts, proactive planning ensures your legacy is one that brings joy for generations to come.
Let’s make your estate plan a gift that truly keeps on giving. Call Kaminski Law Group at (916) 540-7618 or email hello@californiatrusts.law to schedule your consultation. Together, we’ll wrap up your financial legacy in a bow of peace and certainty this holiday season.
Happy Holidays from Kaminski Law Group
Wishing you a season filled with joy, family, and the confidence that your estate plan is in perfect order.
