2025 Strategies: Exemptions, Trusts, and Tax Planning

Strategies for Estate Planning Under TCJA

The Tax Cuts and Jobs Act (TCJA) of 2017 ushered in significant changes to federal estate, gift, and generation-skipping transfer (GST) tax exemptions, offering unprecedented opportunities for tax-free wealth transfers. However, these elevated exemption levels are set to expire at the end of 2025, potentially exposing mid-sized to larger estates to significant tax liabilities. Now is the time to act for those looking to safeguard their assets and secure their legacy.

This article explores the current landscape, upcoming changes, and actionable strategies to optimize your estate plan before the 2026 sunset.

The Current Landscape

Under the TCJA, the federal lifetime gift and estate tax exemption nearly doubled. As of 2024, individuals can transfer up to $13.61 million, and married couples up to $27.22 million, tax-free. These limits are projected to rise to $13.99 million per individual in 2025.

However, unless Congress takes action, the exemption will revert to pre-TCJA levels on January 1, 2026, estimated to be around $7 million per individual, adjusted for inflation. This reduction could subject more estates to federal taxes, underscoring the importance of proactive planning to lock in current benefits.

The Importance of Proactive Estate Planning

Treasury guidance assures that gifts made using the current elevated exemption will not face “clawback” if the exemption decreases in 2026. This provides a limited window to tax-free transfer of significant assets, making now a critical time to act.

Key strategies to consider:

1. Maximize Annual Gifting

In 2025, the annual gift exclusion will rise to $19,000 per recipient, up from $18,000 in 2024. Leveraging this exclusion allows you to:

• Reduce your taxable estate incrementally.
• Make tax-free transfers to family members or irrevocable trusts without affecting your lifetime exemption.

2. Consider Lifetime Gifting to Irrevocable Trusts

The current exemption levels present a unique opportunity to make significant lifetime gifts before the anticipated drop. Irrevocable trusts offer additional benefits, including:

• Shielding assets from future estate taxes.
• Providing creditor protection for beneficiaries.
• Preserving family wealth while ensuring tax efficiency.

3. Review and Optimize Trust Structures

Trusts, family limited partnerships, and other estate planning tools can help you minimize tax liability while transferring wealth strategically. Now is the time to:

• Evaluate existing trust structures.
• Incorporate strategies like Spousal Lifetime Access Trusts (SLATs) to maximize exemptions.

4. Utilize Both Spouses’ Exemptions

Strategic planning can ensure full use of both spouses’ exemptions for married couples. Options include:

• Structuring joint trusts to allow a surviving spouse to inherit assets while utilizing the deceased spouse’s unused exemption.
• Doubling the amount of tax-free wealth that can be transferred before 2026.

5. Plan for Future Generations

The GST tax exemption aligns with the lifetime estate exemption, allowing tax-free transfers to grandchildren and beyond. Taking advantage of this in 2025 can protect wealth from future taxes while ensuring your legacy spans generations.

6. Make Charitable Contributions

If you are charitably inclined, gifts to qualified 501(c)(3) organizations can:

• Provide immediate income tax deductions.
• Reduce the size of your taxable estate.

Potential Legislative Scenarios Post-2025

The future of estate tax law after 2025 remains uncertain, with several potential outcomes. One possibility is that Congress could extend the current elevated exemption levels, as their contribution to federal revenue is minimal, and their continuation could promote economic stability. Alternatively, the exemption could revert to pre-2017 levels, estimated to be around $7 million per individual, which would significantly increase the number of estates subject to federal estate taxes.

Another possibility is a middle-ground compromise, with the exemption level potentially reduced to approximately $9 million or paired with higher tax rates on amounts exceeding the threshold. Lastly, although less likely, some proposals advocate for lowering the exemption even further to $3.5 million and introducing progressive tax rates, including rates as high as 65% for the largest estates. These scenarios highlight the importance of proactive estate planning to adapt to potential changes.

Key Action Steps Before 2026

To take full advantage of the current estate tax exemptions before potential changes in 2026, start by evaluating your estate. Determine the total value of your assets and estimate your potential tax exposure under the post-2025 rules. This will help you understand whether action is needed to minimize future tax liabilities. Next, consider leveraging the annual gift exclusion, which allows you to transfer up to $19,000 per recipient in 2025 without impacting your lifetime exemption, making it a simple and effective way to reduce your taxable estate.

For larger wealth transfers, explore making significant lifetime gifts, such as contributions to irrevocable trusts or direct gifts to beneficiaries. These strategies enable you to lock in higher exemption levels and shield more assets from future estate taxes. Finally, consult an estate planning attorney to ensure your plans align with your financial goals and comply with current laws. A professional can help tailor strategies to your unique situation and guide you in implementing them effectively.

Securing Your Legacy

At Heban, Murphree & Lewandowski, LLC, we understand the importance of protecting your assets and ensuring your legacy endures for future generations. The elevated exemption levels under the TCJA offer a unique, time-sensitive opportunity for substantial tax-free wealth transfers. By planning strategically now, you can maximize these benefits and safeguard your estate. Estate planning is complex, and every situation requires a tailored approach.

Contact our experienced team to confidently learn more about these opportunities and the evolving tax landscape. Your legacy deserves nothing less.