The $13.99 Million Question: Why 2025 Is Critical for Estate Planning
With major estate tax changes set for 2025, a friend said it best. He waited until the week of a cross-country wedding to buy his plane ticket—only to find the price had tripled. “I got there,” he told us, “but I paid the price for waiting.” For families putting off estate planning, the same lesson applies: procrastination can be costly.
This scenario is a reminder: waiting until the last minute often comes with a cost, especially in estate planning. Acting early offers flexibility, better outcomes, meaningful savings, and far less stress. Waiting until the eleventh hour might still get you there—but it could come at a high cost. If legislation were to change and reduce the lifetime estate tax exemption by half, families with estates projected to exceed $7 million for individuals (or $13.99 million for couples) should prioritize estate planning now, as there may be significant advantages to acting before any new laws take effect.
What is estate tax?
Before exploring what’s changing, it’s important to understand what estate tax is, and why it matters for wealth transfer. The federal estate tax is a tax on the transfer of wealth at death. It applies to the value of an estate passed on to heirs or beneficiaries that exceeds a certain threshold set by law. The tax is assessed on the amount transferred, not on the total assets owned.
Right now, ultra-high-net-worth individuals have a rare opportunity to transfer significant wealth tax-free. But that opportunity is scheduled to shrink dramatically on January 1, 2026. The current lifetime estate and gift tax exemption is set to revert to nearly half that amount if no legislative action is taken.
This sunset presents both a challenge and an opportunity: the challenge of protecting your legacy from unnecessary tax erosion, and the opportunity to act now—while the exemption remains at historic highs—to preserve more wealth for future generations.
Understanding the Sunsetting Estate Tax Exemption
Figure: Federal estate tax exemption amounts for individuals and married couples from 2000 through 2026 (projected). Source: IRS.
Under the Tax Cuts and Jobs Act of 2017, the estate and gift tax exemption were temporarily doubled. As a result, in 2025, individuals have the option to transfer up to $13.99 million tax-free during life or at death. Couples can protect nearly $28 million. However, this provision expires at the end of 2025. In 2026, the exemption will drop to around $7 million per individual, indexed for inflation if not extended.
Legislative Update: Potential Extension of Elevated Exemption
On May 5, 2025, the House of Representatives passed a budget reconciliation bill that would increase the federal estate tax exemption to $15 million per individual, indexed for inflation going forward. This move—if signed into law—would effectively preserve most of the current high exemption levels beyond 2025, offering continued estate planning flexibility for ultra-high-net-worth families.
However, the bill must still clear the Senate, where its future remains uncertain and subject to potential changes. Until legislation is finalized, the default remains: the exemption is scheduled to drop to approximately $7 million per person on January 1, 2026.
A founder with a $20 million estate might currently be fully exempt. In 2026, $6 million of that estate could become taxable.
The IRS has confirmed that gifts made before 2026 using the elevated exemption won’t be “clawed back” into estates. As clarified in IRS Regulation 20.2010-1(c), individuals who use their full exemption now will not be penalized later if the exemption amount drops. So, using the full exemption now results in a permanent benefit.
What Can You Do?
We view this as a unique opportunity to revisit—or initiate—your estate planning process. Rather than focusing solely on tax savings, now is an excellent time to consider how your plan aligns with your family’s long-term goals and today’s generous exemptions. If you haven’t started planning yet, this is a great moment to explore your available options. If you already have a plan in place, it’s an ideal time to ensure it’s up to date and reflects your current goals. Here are some strategies families are considering:
Maximize annual gift tax exclusion to children or grandchildren. Individuals can gift up to $18,000 per recipient annually (or $36,000 for married couples) without using any of their lifetime exemption.
Irrevocable trusts, or entities designed to permanently move funds outside of one’s taxable estate. These may include structures like Spousal Lifetime Access Trusts (SLATs), which can provide flexibility while reducing estate tax exposure
Annual exclusion gifts and tuition/medical payments that don’t count against the exemption
For those with growing businesses, real estate holdings, or investment portfolios, it may be wise to engage an estate planning attorney, tax advisor, and wealth strategist to assess how much future appreciation you could remove from your estate before the exemption is reduced.
Example Estate Tax Impact Before vs. After Sunset (Married Couple)*
Let’s say a married couple has a $20 million estate. Here’s how the numbers stack up:
2025 (Current Law)
Exemption per Spouse: $13.99M
Total Exempt: $27.98M
Taxable Estate: $0
Estate Tax Owed: $0
2026 (Current Law, Sunset in Effect)
Exemption per Spouse: ~$7M
Total Exempt: ~$14M
Taxable Estate: $6M
Estate Tax Owed: $2.4M
2026 (If Proposed Legislation Passes)
Exemption per Spouse: $15M (inflation-adjusted)
Total Exempt: ~$30M+
Taxable Estate: $0
Estate Tax Owed: $0
*Note: Numbers above are for illustrative purposes. Final terms may change. If enacted, the proposed bill would preserve more of today's elevated exemption levels; indexed inflation going forward.
By using the full exemption in 2025 to transfer assets out of the estate, this couple could avoid a potential $2.4 million estate tax liability that would otherwise exist under the reduced 2026 exemption.
Why Planning Ahead Matters
Proactive planning is less about tax efficiency and more about ensuring your wealth supports what matters most to you—family, legacy, and long-term peace of mind. As we look ahead to the end of 2025, getting started sooner rather than later can help avoid the rush that often comes with year-end deadlines. BakerHostetler notes that delaying planning until the end of 2025 could result in bottlenecks for legal and financial professionals scrambling to handle last-minute requests. By beginning the conversation now, you can approach your planning thoughtfully and with greater flexibility.
The closer we get, the more crowded the field becomes—and the fewer seats at the table.
Take the Next Step
If your estate is approaching or could surpass the current exemption limits, taking a fresh look at your estate plan is one option to consider. Since these exemption amounts may decrease after 2025, reviewing your plan now can provide greater flexibility and help you avoid last-minute decisions if the rules change.
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Sources:
¹ IRS Final Regulations on Estate and Gift Tax Exemption, Reg-106706-18
² JPMorgan Private Bank: "Preparing for the Estate Tax Sunset: A One-Time Opportunity"
³ BakerHostetler: "Preparing for the 2026 Estate Tax Sunset"
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