If you possess substantial wealth, it is imperative to review your estate plan in light of the fact that the federal estate and gift tax exemption is slated to expire at the end of 2025. As of 2024, the amount of the individual exemption is $13.61 million. This means that no federal tax is levied on estates whose value does not exceed that amount. Through careful estate planning, married couples can effectively double the exemption amount to slightly more than $27 million. Under federal law, the specific exemption level is revised annually consistent with inflation. 

However, the exemption amount reflects a major increase mandated by the 2017 Tax Cuts and Jobs Act (TCJA). As written, the provision that raised the exemption is set to expire at the end of 2025. Unless Congress acts to change the current sunset provision or replace it through new legislation, the 2026 individual exemption will be approximately $7 million. For high-net-worth individuals, this sharp decrease could have a significant financial impact. Estates that exceed the exemption limit are subject to a federal estate tax rate of up to 40 percent. The drop in the exemption would mean that many more estates will fall under this taxable category, significantly reducing the amount that would be passed to heirs.

Even if you are not sure whether your estate plan would be affected by the potential sunset of the TCJA exemption level, you should speak with an experienced wills and trusts attorney who can identify ways to protect your loved ones regardless of what Congress does. One key strategy is to take advantage of the current, higher exemption, which also applies to gifts, by transferring assets to family members before the end of 2025. Using trusts, family limited partnerships or other sophisticated planning tools can also help reduce the taxable value of an estate and shield assets from possible future taxation.

If Congress intervenes and passes legislation to extend the current exemption levels, the immediate impact would be avoided. However, given the uncertainty surrounding future tax policy, waiting to act could be risky for those with large estates.

Anker Law Group offers comprehensive estate planning counsel to South Dakota residents. We can answer your questions about the latest legal developments and prepare a will, trust or other legal instrument that suits your situation and goals. Please call 605-519-5967 or contact us online for an appointment. Our office is in Rapid City.