Upcoming Estate Tax Changes: How to Protect Your Wealth Before 2025

 

The Current Federal Estate Tax Exemption

The current federal estate tax exemption, often referred to as the death tax, which was significantly increased by the Tax Cuts and Jobs Act of 2017, is set to sunset or revert to previous levels at the end of 2025.

Estate Tax Exemption Amounts

In 2023, the exemption amount was $12.92 million per individual and $25.84 million per married couple. In 2024, those amounts increased to $13.61 million and $27.22 million. However, the provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire on December 31st, 2025, and the exemption is scheduled to revert to its pre-2018 level of $5.49 million per individual, adjusted for inflation.

Why Understanding These Changes is Crucial

With 2025 around the corner, understanding the specific changes to the estate tax exemption is imperative for effective estate planning.

Case Study: Estate Worth $15 Million

Consider the case of a person who has an estate worth $15 million. Under the 2024 exemption of $13.61 million, their estate is partially taxable. However, if the exemption amount reverts, a larger portion of their estate will be subject to taxation. This change necessitates a strategic reevaluation of his estate plan to mitigate the increased tax exposure.

Effective Estate Planning Strategies

In the complex world of estate planning, strategically transferring wealth to minimize estate tax liability is a primary objective for many individuals with substantial assets. With the federal estate tax rate as high as 40%, effective planning is crucial to preserve wealth for future generations.

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