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Navigating the 2025 Sunset of the Federal Estate Tax Exclusion: A Guide for Future Planning


The federal estate tax, often referred to as the “death tax,” is a tax on the transfer of property at death. One key aspect of this tax is the exclusion amount, which is the value of an estate that can be passed on tax-free. Currently, this exclusion amount is set at $13.61 million per individual due to the Tax Cuts and Jobs Act (TCJA) of 2017. However, this increased exclusion amount is set to sunset, or revert back, to $5 million (adjusted for inflation) after 2025. The maximum federal estate tax rate will remain at 40%. This change could have significant implications for your estate planning.

Understanding the Exclusion Amount

The exclusion amount is essentially a credit against the federal estate tax. It allows an individual to pass on a certain amount of their estate to their heirs without incurring any federal estate tax. For 2024, the exclusion amount is $13.61 million per individual, meaning a married couple could potentially pass on $27.2 million tax-free.

The Implication of the Sunset Provision

The TCJA doubled the basic exclusion amount from $5 million to $10 million, adjusted for inflation, for tax years 2018 through 2025. However, this increase is temporary. Without legislative action, the exclusion amount will revert to its pre-2018 level of $5 million (adjusted for inflation) in 2026. This means that estates of individuals dying in 2026 and beyond could be subject to significantly more estate tax than those of individuals dying in 2025.

Planning for the Future

With the potential decrease in the estate tax exclusion amount on the horizon, it’s important to start planning now. Estate planning strategies such as lifetime gifts, trusts, and other wealth transfer techniques could be beneficial. It’s also crucial to stay informed about legislative changes that could impact your estate plan.

In conclusion, the sunsetting of the federal estate tax exclusion amount in 2025 could have significant implications for many individuals. It’s important to consult with a knowledgeable estate planning attorney to understand these changes and to implement strategies to minimize potential estate tax liability.

Please note that this is a general overview and does not constitute legal advice. Always consult with a professional for advice tailored to your specific circumstances.

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