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Tax Proposals Affecting Wealth Transfer: Things to Consider in Your 2025 Estate Plan

Mar 20, 2025 | Estate Planning

The Trump Administration Has Proposed a Couple of Significant Shifts in the Estate Planning Landscape:

A Potential Repeal of the Federal Estate Tax. The current estate tax exemption is $13.99 million per person and is scheduled to decrease to approximately $7 million per person in 2026. The Trump administration plans either to keep the higher exemptions or completely eliminating the estate tax altogether.

 

Should this occur:

 

  • The emphasis may move from sophisticated tax avoidance strategies to minimizing capital gains taxes and other tax-efficient strategies for passing along wealth.

 

  • Individuals should focus on strategies for addressing estate and inheritance taxes in their own states.

 


Reformed Capital Gains Tax May Replace the Estate Tax. Such a change could alter how inherited assets are taxed.

 

Should this occur:

 

  • The law currently requires inherited assets to be valued at fair market value at the time of the decedent’s death. This “step-up” in the basis eliminates capital gains tax on the increase in value from the original purchase to the time of the decedent’s death. But if this provision of the law is removed, heirs may face significant capital gains taxes upon sale.

 

  • If the decedent’s death is treated as a realization event (as the new administration is considering), the beneficiary who inherits the asset would pay capital gains tax as if the asset had been sold at the time of death. This could especially burden heirs of non-liquid assets such as houses, private company interests, antiques, and other real estate.

 


Other Proposals That May Affect Investment Behavior and Long-Term Wealth Planning

 

  • High-Income Earners May Face Increased Capital Gains Tax Rates. This may affect investment strategies.

 

  • Annual Taxation of Unrealized Gains. This proposal would exact a yearly tax on unrealized gains for individuals whose net worth is greater than $100 million.

 

  • Net Investment Income Tax. The 3.8% tax on investment income for high-income earners would be continued.

 


What to Do Now: Estate Planning in Anticipation of a Shift

 

  1. Individuals may need to reassess their Lifetime Gifting Strategies. Once used to minimize estate tax liability, use of Lifetime Gifting may change to adapt to new requirements.
  2. The focus may shift from creating trusts for the purpose of minimizing estate taxes to minimizing capital gains taxes.
  3. Your estate planner may need to focus on accurately documenting cost basis to minimize your capital gains tax burdens.
  4. Given the current uncertainty of these proposals, maintain flexibility in your estate plans.
  5. Use trust structures with adjustable provisions.
  6. Mitigate tax burdens and achieve your philanthropic goals with charitable giving.
  7. Carefully plan the timing of your gift-giving, sales, and inheritances.

 

Need help navigating the estate and trust landscape?
Experienced SGW attorneys are standing by to assist you. Call 609-409-3500.



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