2025 Estate Planning News
As we begin the new year, it is important to be aware of federal tax developments that may affect your estate planning strategies in 2025. While the information below reflects current law, please remember that Congress can pass legislation at any time that could alter these rules. You should always consult with an experienced Will County or DuPage County estate planning attorney before finalizing any transfer tax planning decisions.
Lifetime Exclusion Increased to $13,990,000
As of January 1, 2025, the federal gift and estate tax exclusion and the generation-skipping transfer (GST) tax exemption (collectively, the “lifetime exclusion amounts”) have increased to $13,990,000 per individual, or $27,980,000 for a married couple. This marks an increase of $380,000 per person from 2024 and opens new gifting opportunities—even for those who had previously exhausted their lifetime exclusion amounts.
2025 Sunset of Lifetime Exclusion Amounts
The current lifetime exclusion amounts are set to revert on January 1, 2026, to a base amount of $5,000,000 (adjusted for inflation). Although Congress may act to prevent this reduction, individuals looking to leverage the higher exclusion should consider acting now. If you have sufficient assets to gift some or all of your lifetime exclusion, it may be prudent to begin your planning promptly under the “use it or lose it” principle.
Annual Exclusion Increased to $19,000
As of January 1, 2025, the federal gift tax annual exclusion amount has increased to $19,000 per gift recipient ($38,000 for a married couple). This is an increase of $1,000 over 2024. Gifting within these annual exclusion limits can be an effective way to transfer assets without using any of your lifetime exclusion amount or paying gift tax.
Federal Tax Rates for Estates and Trusts Unchanged
- The highest federal estate, gift, and GST tax rate remains 40% for 2025.
- The highest federal income tax rate for estates and non-grantor trusts remains 37% for 2025, applying to taxable income over $15,650 earned in tax year 2025.
Federal Estate Tax Portability Unchanged
Portability—the ability to transfer a decedent’s unused estate tax exclusion to the surviving spouse—remains available for 2025. To preserve this benefit, a federal estate tax return must be filed. Additionally, the five-year period for a late portability election is still in effect. If your spouse passed away within the last five years and no portability election was made, it may be worth exploring whether to file one now, especially given the potential decrease in the lifetime exclusion on January 1, 2026.
Required Minimum Distributions (RMDs)
- Inherited IRAs: Beginning in 2025, certain beneficiaries who inherited an IRA from an individual who had reached their “required beginning date” must begin taking RMDs each year—or risk incurring penalties. This requirement applies even if you inherited the IRA previously and intended to withdraw under the ten-year rule.
- Qualified Charitable Distributions (QCDs): The annual tax-free distribution from an IRA to a qualified charity for individuals age 70½ or older is now $108,000. If you are over age 73, this amount will count toward your annual RMD. Note that the QCD must be made directly to a qualifying 501(c)(3) charity; private foundations and donor-advised funds do not qualify.
- Other Retirement Plan Considerations: For participants with qualified retirement accounts, the required beginning date for RMDs is April 1 of the year after turning 73 (if born in 1951 or later). Roth accounts in 401(k) and 403(b) plans are exempt from pre-death RMDs starting in 2024. If you continue to work, check current catch-up contribution rules, as they have changed this year and may be adjusted for inflation. Consult your plan administrator or financial advisor to confirm which rules apply and to calculate your RMD for 2025.
Next Steps
If you are considering taking advantage of increased exclusion amounts, annual gifting, or need guidance on retirement distribution changes, it is advisable to begin your planning now. Because laws are subject to change, it is critical to consult a qualified estate planning attorney to ensure your plans remain aligned with your goals and comply with evolving federal requirements. Illinois residents should also stay apprised of any state-level regulations that may affect their overall estate plan.
If you have questions or wish to review your estate planning strategy in light of these 2025 updates, please feel free to contact our office. We are here to help you make informed decisions and protect your legacy for generations to come.
Disclaimer: The above is provided for informational purposes only and does not constitute legal advice. You should consult DuPage County estate planning attorney regarding your particular legal needs.
