Estate planning is part intention and part practicality. People decide what kind of legacy they want to leave based on personal values and close relationships. They then draft legal documents that help them achieve those goals.
Those hoping to leave a positive legacy for others typically need to plan carefully to make use of the laws that apply at both the state and federal level. Many of the state-level regulations for estate planning remain the same unless there are major statutory changes. However, some of the important federal rules that may affect how people plan their estates can fluctuate from year to year.
There are two important exemption levels that people need to be aware of as they create their estate plans or update them in late 2024 or throughout 2025.
What exemptions have changed?
The federal estate planning rules that fluctuate have to do with tax liability and how much property people can exempt. Estates worth more than a certain amount are at risk of federal state taxes. Those taxes can be quite significant, as the tax rate is progressive.
Anyone whose estate is over the exemption threshold may lose a minimum of 18% of their estate to the federal government when they die. Those who are significantly over the federal threshold for the total value of their estate might have to pay as much as 40% in state taxes.
It is therefore crucial to ensure that people adjust their plans based on the threshold after which taxes begin to apply. In 2025, the threshold for estate tax exemption increases from $13.61 million to $13.99 million.
Planned gifts to loved ones are often one of the ways that people sidestep estate tax liability. However, gift taxes may apply if people give their loved ones too much in a single year. The 2025 gift tax exemption increases from $18,000 per individual taxpayer to $19,000. It is also important for people to understand that the last three years of gifts can potentially count toward the total value of the estate for the purposes of estate tax calculations after their passing.
Individuals with particularly valuable resources may need to review their estate plans regularly to better minimize the total amount of federal estate tax liability that they incur. Those who plan proactively by establishing thorough estate plans and reviewing them routinely can maximize how much of their property transfers to their intended beneficiaries when they die.