Estate Tax Changes Ahead: What You Need to Know
The current lifetime gift and estate tax exemption increases to $13.99 million per person ($27.98 million for married couples). However, this exemption will expire at the end of 2025. If no new law is passed, the exemption will drop to approximately $7 million per person ($14 million for married couples), leading to higher estate tax liabilities for larger estates.
This exemption level was temporarily increased by the 2017 Tax Cuts and Jobs Act (TCJA), but it is scheduled to revert to lower amounts unless Congress acts. Republicans generally support extending the higher exemptions, while Democrats favor letting them expire. However, political uncertainties mean no resolution is likely before late 2025.
If you live in Maryland, estates over $5 million per person are subject to tax at rates going up to 16%. In Maryland, the exemption is “portable” between spouses. Portability means that when one spouse dies, their exemption can be applied to the surviving spouse’s estate… The full $10 million of exemption for a married couple can be preserved with some planning.
For District of Columbia residents, after January 1, 2025, the estate tax exclusion (zero bracket) amount is increased to $4,873,200.00. There is no portability in the District of Columbia.
Virginia residents do not have an estate tax at the State level.
What Should You Do?
- Consider Gifting Now: Use the current high exemption to make gifts before 2025. The IRS won’t “claw back” gifts made under the higher limits, but gifting should be carefully planned to avoid financial strain. However, beware of the capital gains tax impact of gifting highly appreciated assets. Your heirs will get a “carry over” basis, which means that when they sell the asset, their gain is calculated as if they bought the asset at its original price.
- Create or Update Your Estate Plan: Whether or not you’re affected by estate taxes, having a plan ensures your wishes are followed. What has changed for you? Did you buy a second home? Have you had some health challenges? Are you estranged from any family members? Do you have new additions to the family? We urge you to review your plan every five years to keep it updated.
Uncertainties around tax laws highlight the importance of flexible, proactive planning. Call us if you are concerned about protecting your assets, avoiding taxes, or achieving your legacy goals.
