The new year is right around the corner, making now the perfect time to review your estate plan. With 2025 bringing key changes to tax laws and financial regulations, your current plan may need updates to keep it effective and aligned with your goals. Here’s what you need to know to prepare for the upcoming changes.
Key Changes Coming in 2025
1. Federal Estate and Gift Tax Exemptions Are Dropping
Currently, individuals can pass on up to $13.61 million tax-free through estate or gift transfers. However, this exemption is set to drop by nearly half—to around $7 million per person—on January 1, 2026, unless Congress acts to extend the current limits.
If your estate exceeds this reduced exemption, you may face substantial taxes. Planning ahead can help protect your assets from unnecessary tax burdens.
2. Expiration of Tax Cuts and Jobs Act Provisions
The Tax Cuts and Jobs Act (TCJA), passed in 2017, brought lower income tax rates and higher standard deductions. Many of these provisions will expire at the end of 2025, resulting in potential tax increases.
For example:
- The top federal income tax rate may rise from 37% to 39.6%.
- The standard deduction may decrease, increasing taxable income for many households.
- Enhanced child tax credits could revert to lower levels.
3. State-Level Tax Adjustments
Several states are making income tax adjustments in 2025, including lower income tax rates and simplified flat tax systems. Meanwhile, other states may introduce new taxes. Here in Ohio, estate tax was eliminated in 2013 and does not impose an inheritance tax. This means that, at the state level, there are no estate or inheritance taxes to consider for your estate planning in 2025. Be sure to check your state’s tax policies to see how they might impact your estate and financial plans.
4. Retirement Account Rules May Shift
While no major changes have been confirmed, Congress continues to evaluate retirement account regulations, including contribution limits and required minimum distributions (RMDs). Any changes to these rules could impact your retirement and estate strategies.
5. Economic and Policy Uncertainty
With rising deficits and shifting economic policies, inflation and interest rates may fluctuate in 2025. These changes could affect investments, property values, and long-term planning. Staying informed and proactive can help you adapt your estate plan to changing economic conditions.
Steps to Get Your Estate Plan Ready for 2025
1. Review Your Current Plan
Start by reviewing your will, trusts, and other estate documents. Ensure your beneficiaries and agents are up to date, especially if family dynamics have changed.
2. Address Potential Tax Impacts
Work with your financial advisor to determine whether the lower exemption levels will affect your estate. You may want to take advantage of the current higher limits before they drop.
3. Evaluate Gifting Strategies
Consider making tax-free gifts using the annual gift tax exclusion ($17,000 per recipient in 2023). This can reduce your taxable estate while benefiting your loved ones now.
4. Update Beneficiary Designations
Double-check beneficiaries listed on retirement accounts, insurance policies, and payable-on-death accounts. Misaligned designations can override your will.
5. Consult with an Estate Planning Attorney
The 2025 changes are complex and may require adjustments to trusts, asset protection strategies, or tax-saving plans. An attorney can help you navigate these updates and ensure your estate is secure.
The start of 2025 brings significant changes that could impact your estate planning. Whether you need to create a new plan or update your existing one, acting early can help you avoid tax pitfalls and keep your legacy intact.
Contact our office today to schedule a consultation and ensure your estate plan is ready for the year ahead!