Should You Change Your Plans Due to the Potential Reduction in the Estate Tax Exemption?

Many people associate prudent estate planning with the creation of a will or trust. However, no one should stop paying attention to estate planning once they’ve signed their documents. In some cases, life changes, such as a divorce, estrangement or new child, compel a shift in priorities. Other times, legal developments might justify revisions. 

When the Tax Cuts and Jobs Act of 2017 was enacted, it essentially doubled the federal estate and gift tax exemption. With yearly adjustments for inflation, this increased exemption is now $13.99 million for an individual. This means that when someone passes away during 2025, federal estate tax is not imposed unless the total value of their estate exceeds that amount. For married couples, this standard can be effectively doubled to $27.98 million.

Though many Americans in the past eight years have created and modified estate plans based on the 2017 legislation, the increased exemption is scheduled to sunset on January 1, 2026 if Congress does not act. A reduction in the exemption could cause serious problems for families. Estates exceeding the lower exemption threshold could face federal estate tax rates of up to 40 percent. Fortunately, there is time to make changes to your estate plan that can mitigate or eliminate the harm stemming from a reduced exemption. To prepare for the potential changes, consider the following strategies if your estate might be affected:

• Lifetime gifting — You can use the high current exemption level to make tax-free gifts to family members or trusts. This can reduce the size of your taxable estate while transferring wealth to future generations.
• Create one or more trusts — Assets that are passed through some types of trusts are excluded from a decedent’s estate, lowering the potential tax exposure. 
• Utilize non-probate options — Jointly owned properties, life insurance proceeds and accounts that the owner to name a payable-on-death designee also allow property to be distributed in a manner that does not count against the exemption. 

The potential reduction in the estate and gift tax exemption underscores the importance of proactive estate planning. By updating your estate plan now, you can protect your assets, minimize tax liability and ensure your wishes are carried out. 

At the Law Office of Maurice J. Verrillo, P.C. in Rochester, we have more than 35 years of experience advising Western New York clients on estate planning matters and other legal issues. Please call our office at 585-563-1134 or contact us online to schedule a free 30-minute consultation.

By Maurice J. Verrillo | Published June 5, 2025 | Posted in Estate Planning | Tagged estates, reduction, trusts | Comments Off on Should You Change Your Plans Due to the Potential Reduction in the Estate Tax Exemption?