With a new political administration, it’s important to keep your eye on some possible changes coming down the pike that could affect your finances, particularly taxes on Estate Exemptions and Annual Gift Exemptions.
Last year, the Estate Exemption amount rose to $13,610,000 due to inflation. But what does that mean?
“There’s this concept from the estate standpoint that when we pass away, if we have a certain amount of wealth, the government should be able to tax some of it, while some should be able to be passed to your heirs without it being taxed,” explains Steve Wolterman of Wolterman Law Office.
At the end of 2025, this current tax setup originally put in place by President Trump in 2017 and titled the Tax Cuts and Jobs Act (TCJA) is slated to “sunset”—i.e., reset.
“That means if you pass away in 2025, your estate can have about $14 million ($13.99M) to give to your children without any tax, but anything over that would trigger the Estate Tax,” Steve explains.
That number is per person, so if you’re a couple, you could give almost $28 million without being taxed.
Next year, however, the exemption is scheduled to automatically reset on January 1, 2026, to just $5 million unless Congress acts prior to then.
“One would reasonably be interested in less tax,” Steve says. “By the end of 2025, if Congress continues the TCJA, we’re going to continue to have these higher exemption amounts, which would be good for the ultra-wealthy … whereas more moderately wealthy people or people who accumulate $5 million in a lifetime might not be as concerned with the Estate and Gift Taxes.”
It could also affect younger people who may come into an inheritance. “You can wait to see what happens throughout 2025 and see if Congress enacts the TCJA, and then act or set up some trusts accordingly.”
In addition to Estate Exemptions, there are also Gift Exemptions that could be affected next year and impact those of any income bracket.
“There’s always an annual Gift Exemption amount that’s separate, and this is important for people to know—you can give any single person $19,000 without any taxes or reporting,” Steve explains further.
This comes in handy if a parent wants to help an adult child buy a house or start a business, for example, or if you just give someone a monetary gift.
“That means a mom and dad combined can give $38,000 without any repercussions tax-wise or reporting, or give $76,000 to a daughter and son-in-law,” Steve says. “These tax rules not only apply to high-network people, but also people who are retired or have children.”
If the TCJA doesn’t get renewed at the end of the year, tax rules will revert back to what they were in 2017—which essentially means more tax.
“At the end of the day, we go through this every so many years—so it’s a good reminder to think about an Estate Plan and talk to a professional to discuss the lay of the land. Find out if there are any other smart steps you can take now,” Steve advises.
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It’s a good reminder to think about an Estate Plan and talk to a professional to discuss the lay of the land.