Key Takeaways

1. The current lifetime gift and estate tax exemption amounts are scheduled to expire at the end of 2025, and if there is no change to the law, will revert to 2017 levels.
2. The future of the federal estate tax exemption depends on many factors, not just which party controls the White House and Congress after the election.
3. Given the current uncertainties around estate taxes, it is important to meet with an estate planning attorney to consider flexible plans that support long-term planning goals.

Current Lifetime Gift and Estate Tax Exemption

As estate planning attorneys, we strive to keep our clients informed and suggest opportunities to respond to changes. The results of the election appear to be decided, and although we do not know exactly what the future holds, we do have some clues as to what the federal tax laws may look like as the balance of power in Washington, D.C. shifts in 2025.

Currently, the federal estate tax exemption stands at $13.61 million per individual or $27.22 million for a married couple. This amount will increase in 2025 to $13.99 million per individual or $27.98 million for a married couple. This high exemption level was established by the Tax Cuts and Jobs Act (TCJA) of 2017, which temporarily increased the exemption from a base of $5 million per person (adjusted for inflation) to a base of $10 million per person (adjusted for inflation). This provision of the TCJA is scheduled to expire on December 31, 2025. Without further legislative action in Washington, the exemption will revert to the base of $5 million per person, adjusted for inflation to approximately $7 million per individual or $14 million for a married couple.

A reduction of the estate tax exemption will mean that individuals with estates valued above this threshold will face higher estate tax liabilities. With the high exemption level, many estates are currently shielded from federal estate taxes, but a lower exemption would increase the taxable portion of those estates, potentially leading to a higher estate tax burden.

What Happens Next?

Generally, Republicans support extending the TCJA’s beneficial estate tax provisions, while Democrats lean towards allowing them to expire as scheduled and potentially reducing the exemption amount further.

With Republicans gaining control of the White House and the Senate, and possibly winning a majority of seats in the House of Representatives, there is a greater likelihood that major Republican policy proposals could turn into legislative action. However, the large federal deficit may lessen the appetite for a full extension of the TCJA, and the slim majorities mean that negotiation and compromise will be necessary. Any resolution is unlikely before the second half of 2025.

What Should Clients Do Now?

One common estate planning opportunity that clients should consider is using the current higher gift and estate tax exemptions, in case they are not extended. The IRS has indicated that gifts made under the higher exemptions will not be “clawed back” if the exemption levels decrease. However, gifting assets during life, whether directly or in trust, could impact clients’ ability to fund their lifestyle, now or in the future. Any discussion about making such gifts should include careful cash-flow planning to see how such changes might impact clients’ finances.

Clients can use the current exemption by giving away cash, securities, or even real estate. Gifts may be made outright or placed in trust for a spouse or children, if proper provisions are included in the trust. A trust can help manage assets, protect wealth, and ensure beneficiaries are provided for. For instance, a trust may delay beneficiaries’ access or control over the gift assets and protect those assets from creditors or other third parties. Any discussion about a trust should cover the trust terms, which can vary significantly, as well as identify trustees who will ensure the trust terms are honored.

For those willing and able to use their current exemptions, now is the time. Waiting until December 2025 risks last-minute decisions, limiting time for thoughtful consideration and planning. Unexpected issues could prevent timely completion of gifting.

Clients without an estate plan should not delay creating one, regardless of the outcome of the 2024 election. Even for clients unlikely to owe estate taxes at death, having a plan in place is crucial. Estate planning is not just for the wealthy; a carefully crafted plan ensures that assets are distributed according to one’s wishes and loved ones are cared for in unforeseen events. Discussions with an estate planning attorney should emphasize flexibility for potential tax law changes while focusing on achieving long-term goals.

We recommend that all adults have at least a last will and testament, a power of attorney, and a health care directive. Additionally, every estate plan should be reviewed at least every five years to ensure it continues to reflect the client’s wishes and adapt to any life changes.