what does the estate tax revert to in 2025?

Sav Ter devian

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30-12-2024

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What Happens to the Estate Tax in 2025? A Look at the Reversion

The Tax Cuts and Jobs Act of 2017 significantly altered the US estate tax system, introducing temporary changes that are set to expire at the end of 2025. This means a reversion to the pre-2018 rules is on the horizon, prompting considerable discussion and planning among high-net-worth individuals and their advisors. Let's examine what this reversion entails.

The Temporary Changes of 2017:

Before 2018, the estate tax exemption was considerably lower. The 2017 tax act doubled the exemption amount, significantly increasing the threshold at which estates become liable for the tax. Additionally, it temporarily raised the top estate tax rate. These changes were designed to be temporary, sunsetting at the end of 2025.

The Reversion in 2025:

Unless Congress intervenes, the following changes will take effect in 2025:

• Reduced Estate Tax Exemption: The estate tax exemption will revert to its pre-2018 level. This means a substantial decrease in the amount of assets that can pass tax-free to heirs. While the exact figure will depend on inflation adjustments, it's expected to be significantly lower than the current exemption. This will result in a larger number of estates becoming subject to the tax.

• Lower Top Estate Tax Rate: While the precise rate is subject to inflation adjustments, the top estate tax rate is also expected to decrease from its current level. This doesn't mean the tax disappears entirely; it simply means the percentage levied on the taxable portion of the estate will be lower.

What This Means for High-Net-Worth Individuals:

The reversion to the pre-2018 estate tax rules will have significant implications for individuals with large estates. More estates will be subject to the tax, and the tax liability for those affected will likely increase. This necessitates proactive estate planning to minimize the tax burden. Strategies to consider include:

• Gifting: Gifting assets to heirs before 2025 can help reduce the size of the taxable estate. However, careful consideration of gift tax implications is crucial.

• Trusts: Establishing various types of trusts can help manage and protect assets, minimizing estate tax exposure.

• Charitable Giving: Donating assets to qualified charities can reduce the taxable estate's value.

• Strategic Asset Allocation: Careful management of assets to minimize taxable value can be beneficial.

Uncertainty and the Need for Professional Advice:

The potential for Congressional action before 2025 adds another layer of complexity. Lawmakers may choose to extend the current, more generous estate tax rules, modify them, or leave them unchanged. This uncertainty highlights the importance of seeking professional advice.

Conclusion:

The 2025 estate tax reversion represents a significant shift in the landscape of estate planning. Understanding the potential changes and proactively adapting estate plans is crucial for high-net-worth individuals to mitigate the impact of this tax. Consulting with an estate planning attorney and a financial advisor is highly recommended to navigate this complex issue effectively. The earlier you begin planning, the more options you'll have to ensure your legacy is preserved for your heirs with minimal tax consequences.