3 Critical Changes in Estate Planning in 2025
As 2024 nears its end, new and potentially expiring laws can dramatically affect your estate planning. What do you need to know, and what do you need to do now? 1. Sunset of High Federal Estate Tax ExemptionThe Federal estate tax exemption will increase to an historically high $13,999,000 in 2025, but it is then scheduled to drop to about $7,000,000 in 2026. What this means for you is: while now you can give away almost $14,000,000 during life and after death without paying Federal gift or estate tax, as of January 1, 2026, you will only be able to give away during your life or at your death about $7,000,000, free of gift and estate taxes. With the Federal gift and estate tax rate at 40%, a decreased exemption will be costly for many taxpayers. With President-elect Trump heading back to the White House and Republicans set to control the Senate and likely the House of Representatives (control of the House remains open at this time), the high exemption (and other tax law provisions enacted during President Trump’s first administration) may be extended beyond 2025. However, given the political unknowns and the tradeoffs that affect tax legislation, an extension of the high estate tax exemption is not certain. Further, many assets, including investments in real estate, have relatively depressed current values. Therefore, we recommend that high net worth individuals act proactively to make gifts shielded by the high exemption under current law and make gifts as soon as possible so appreciation of the gifted assets is free of gift and estate tax. One effective gift tool for many high net worth individuals is a gift of assets expected to appreciate to an irrevocable trust whose beneficiaries are family members such as a spouse, children, grandchildren and future descendants. In addition to sheltering the gifted assets and their appreciation from future gift and estate taxes, the trust can provide creditor protection for generations to come. Another basic estate planning tool (that has applied under tax law for many years and should continue without change) is to make gifts that do not count against the exemption: so-called annual exclusion gifts, which can be potentially made to an unlimited number of individuals but not more than $18,000 per individual in 2024 and $19,000 per individual in 2025. For those who have not yet made annual exclusion gifts in 2024, we recommend that you consider making them before 2025 and then consider making annual exclusion gifts in 2025 at the beginning of the year. Proper planning can take time to implement and, unless the law changes, the high exemption is a “use it or lose it” deal. Therefore, if you wish to take advantage of an estate tax savings strategy through gifting, you should seek advice from an estate planning attorney as soon as possible to make sure your gifts are complete before the end of 2025. 2. Required Minimum Distributions from Inherited Retirement AccountsIf you inherited a retirement account in 2020 or later, you may be subject to new required minimum distributions starting January 1, 2025. If you are not the spouse, minor child, or less than 10 years younger than the deceased account owner, or if you are not disabled or chronically ill, you are required to withdraw the entire account within 10 years of the death of the account owner. As of the beginning of 2025, a 10-year beneficiary must still withdraw the entire account within 10 years of the death of the deceased account owner. However, if the deceased account owner was required to take distributions annually, the 10-year beneficiary must also withdraw distributions annually. If the account owner was not required to take distributions annually, the annual withdrawal requirement will not apply, and the beneficiary may withdraw the account at intervals appropriate for the beneficiary, so long as is the entire account is withdrawn within 10 years. The IRS will impose a penalty for failing to take a required annual distribution in 2025 or later, so beneficiaries of inherited retirement accounts should review their distributions and make sure the withdrawal requirements will be met. 3. FinCEN Filing Deadline for Company OwnersIf you are a business owner, you should be aware of a new Federal non-tax filing requirement, effective this year under the Corporate Transparency Act (often referred to as CTA) that applies to many companies, including limited liability companies used for estate planning purposes that may not have to file income tax returns – the Beneficial Owner Information Report “(BOIR”). The BOIR is filed on fincen.gov, and the filing must include the identifying information of the individuals who own 25% or more of the company or exercise substantial control over the company. A company formed prior to 2024 is required to file by January 1, 2025. A company formed in 2024 is required to file within 90 days of formation. A company formed in 2025 or later is required to file within 30 days of formation. Not all companies are required to file. More information about exemptions and deadlines can be found on the fincen.gov website. The penalties are steep for failing to file, so before you ring in the new year, if your company is required to file a BOIR, make sure that it is filed on time. The above demonstrates the need to monitor changes in Federal law and act proactively to benefit from potentially expiring laws and avoid being harmed by new laws. The attorneys at Selzer Gurvitch Rabin Wertheimer & Polott, P.C. are committed to helping you. If you have questions about your estate planning and would like to consult with an attorney, please contact Kristin J. Hall, Esq. at khall@sgrwlaw.com. |