As we start the new year, this Federal Tax Update highlights estate planning-related federal tax information as you consider 2025 planning options. Because Congress could pass legislation that changes this information, you should contact your estate planning attorney for advice prior to taking any transfer tax planning action.
Key Tax Concepts for 2025
- Lifetime Exclusion Increased to $13,990,000: As of January 1, 2025, the federal gift and estate tax exclusion amount, as well as the exemption from generation-skipping transfer (“GST”) tax (collectively, the “lifetime exclusion amounts”), have increased to $13,990,000 per person, which is a combined $27,980,000 for a married couple. That is an increase of $380,000 per person. This presents additional gifting opportunities even for individuals who previously used their full lifetime exclusion amounts.
- 2025 Sunset of Lifetime Exclusion Amounts: The lifetime exclusion amounts are scheduled to sunset at the end of 2025, decreasing on January 1, 2026, to a $5,000,000 base amount plus an inflation adjustment. Although Congress could act to prevent this decrease, time is running out to start your gifting plans if using the lifetime exclusion amounts might be appropriate for you. This is a “use it or lose it” scenario. If you have sufficient assets to gift some or all of your lifetime exclusion amounts, you should contact us now to discuss.
- Annual Exclusion Increased to $19,000: As of January 1, 2025, the federal gift tax annual exclusion amount has increased to $19,000 (a combined $38,000 for a married couple). This is an increase of $1,000 per gift recipient compared to calendar year 2024. The annual exclusion is the amount an individual can gift per recipient per calendar year without using any lifetime exclusion amounts or paying any gift tax.
- Federal Tax Rates for Estates and Trusts Unchanged:
- The highest federal estate tax, gift tax and GST tax rate remains at 40% for 2025.
- The highest federal income tax rate for estates and non-grantor trusts is 37% for 2025. This tax rate applies to taxable income over $15,650 earned in tax year 2025.
- Federal Estate Tax Portability Unchanged: The ability to transfer a decedent’s unused federal estate tax exclusion amount to the decedent’s surviving spouse by filing a federal estate tax return (referred to as “portability”) remains in effect for 2025. The period for a late portability election remains five years after the decedent’s death. Making this election following a married individual’s death is prudent if the surviving spouse’s estate might exceed the survivor’s remaining federal estate tax exclusion amount at death (including considering the pending decrease as of January 1, 2026). If your spouse died within the last five years and this election has not been made, you should contact us about the advisability of making the election now.
- Required Minimum Distributions:
- Starting this year, certain beneficiaries who have an inherited IRA must start taking annual required minimum distributions (“RMDs”) in 2025 if the deceased participant had reached their “required beginning date” when RMDs must commence during their lifetime—or incur penalties. This new rule applies even if you previously inherited the IRA and were waiting to withdraw under the ten-year rule.
- The annual tax-free distribution that an individual over age 70 ½ may make from their IRA through a qualified charitable distribution (“QCD”) directly to a qualified charity has increased to $108,000. If the individual is over age 73, the amount will count toward their RMD. The QCD must be made directly to a charity that is a 501(c)(3) organization. Private foundations and donor advised funds do not qualify for the QCD.
- Reminder for participants with qualified retirement accounts: The required beginning date for starting RMDs is now April 1 of the year after you attain age 73 (if you were born in 1951 or later). The current law eliminated pre-death RMDs from Roth accounts in 401(k) and 403(b) plans starting in 2024. For those who are working, you should confirm what options you have for catch-up contributions; the rules change starting this year—and some contribution rules have been adjusted due to inflation. You should contact your plan administrator or financial advisor regarding how these and other changes impact you and how to compute your RMDs for 2025.
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