Estate Planning
Tax Considerations (2025)
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Tax Considerations in Estate Planning: 2025 Playbook
A thoughtful estate plan does more than name heirs—it minimizes the drag of federal, state, and income taxes so your wealth reaches loved ones intact. Below is a client-friendly overview of the key tax angles you (and your advisors) should review as you build or refresh your plan.
1. Federal Estate, Gift & GST Taxes
| 2025 rule | What it means | Planning moves |
|---|---|---|
| Lifetime estate-and-gift exemption – $13.99 million per person | Transfers above this amount (during life or at death) are taxed at up to 40 %. | – Use today’s high exemption to “freeze” future appreciation via GRATs, SLATs or outright gifts. – Elect portability on the first spouse’s return so the survivor can stack unused exemption. |
| Annual gift exclusion – $19,000 per recipient | You can give this amount to unlimited people each year with no gift-tax filing. | Front-load 529 college plans, fund ILIT premiums, or drip gifts to reduce a taxable estate pain-free. |
| OBBBA bump to $15 million in 2026 (permanent, inflation-indexed) | Congress locked in a higher threshold and scrapped the old “2026 sunset” cliff. | If your net worth is pushing $15 M+ ($30 M+ married), begin lifetime transfers now so future growth outpaces the cap. |
Generation-skipping transfer (GST) tax shares the same exemption but is separate—vital if you want assets to leapfrog children and land in trusts for grandchildren.
2. State Estate & Inheritance Taxes
Twelve states plus D.C. still levy their own estate tax—often with exemptions far lower than the federal level (e.g., $2 M in Massachusetts). Six states impose an inheritance tax on recipients.
Tip: If you own property in (or may retire to) a tax-happy state, consider:
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Revocable trusts to avoid ancillary probate and isolate state-tax situs.
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Life-insurance liquidity inside an ILIT to cover state tax bills without a fire-sale.
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Changing domicile—but follow bona-fide residency steps (driver’s license, voter reg, time-spent test).
3. Income-Tax Angles Often Overlooked
| Item | Tax lever | Why it matters |
|---|---|---|
| Step-up in basis | Most appreciated assets get a basis reset to fair-market value at death, erasing prior capital gain. | Holding low-basis stock or real estate until death can beat gifting it during life. |
| Income in Respect of a Decedent (IRD) – retirement plans, deferred comp | Beneficiaries owe ordinary income when they withdraw. | Use a see-through (conduit or accumulation) trust to control timing under the SECURE Act 10-year rule; consider Roth conversions during low-bracket years. |
| Compressed trust brackets | Trusts hit the 37 % top bracket at about $15 k of retained income. | Distribute income to lower-bracket beneficiaries when appropriate, or design the trust as a grantor trust so the settlor pays the tax and the assets grow tax-free for heirs. |
4. Asset-Specific Strategies
| Asset type | Common tax-savvy tools |
|---|---|
| Highly appreciated stock | Charitable Remainder Trust (CRT) or Donor-Advised Fund to bypass capital-gain tax and create income. |
| Closely-held business | Freeze value with a GRAT or Family-Limited Partnership; use a Buy-Sell Agreement funded by insurance. |
| Primary/vacation home | Qualified Personal Residence Trust (QPRT) shifts future appreciation outside the estate while reserving occupancy. |
| Life-insurance proceeds | Irrevocable Life-Insurance Trust (ILIT) keeps the death benefit outside the taxable estate. |
5. Charitable & Philanthropic Levers
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Qualified Charitable Distributions (QCDs) from IRAs (age 70½+) avoid income tax and count toward RMDs.
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Charitable Lead or Remainder Trusts split benefits between charity and family, securing income-, gift-, and estate-tax deductions.
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Bunch-ing gifts into one tax year (or via a Donor-Advised Fund) maximizes itemized deductions while standard deductions are high.
6. Record-Keeping & Timing Best Practices
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Document basis and holding periods—especially for inherited assets.
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Review beneficiary designations annually; TOD/POD forms override your will.
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File Form 709 for gifts above the annual exclusion so the IRS tracks your remaining lifetime exemption.
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Coordinate with professionals—estate attorney, CPA, and financial advisor—so trusts, titling, and tax filings tell the same story.
Bottom Line
Taxes won’t drive every estate-planning decision, but ignoring them can cost heirs 40 % or more of what you meant to leave behind. Start with an honest net-worth snapshot, map your federal and state exposure, then layer the right tools—trusts, lifetime gifts, charitable vehicles—so more of your legacy lands where you want it.
Need a personalized tax-efficient roadmap? Schedule a consultation and let’s tailor strategies to your family, your balance sheet, and today’s evolving tax code.
