Federal laws about estate taxes aren’t the only ones that estate planning attorneys must stay up to date with. There are changes to state estate laws, inheritance laws, and, more recently, issues surrounding digital assets that require attention. A recent article from Dermatology Times, “Anticipated Changes in Estate Planning for 2025 What Dermatologists Need to Know,” contains information not just for doctors, but for everyone.
Will the High Federal Estate Tax Exemption End?
The federal estate tax exemption is now $13,990,000. However, it is scheduled to drop to $seven million on Jan. 1, 2026, unless a new tax law changes the expiration date. As it stands now, anyone may gift nearly $14 million (or almost $28 million for a married couple) without paying federal gift or estate tax. Once the New Year's Eve parties end in 2026, the gift and estate tax limit will decrease to approximately $7 million, applicable to gifts made during your lifetime or at your death. Federal gift and estate tax rates are 40%, which makes this exemption particularly valuable to high-income earners.
There is no way to know what will happen to these exemptions, so planning for a worst-case scenario is worthwhile. One strategy is simply gifting assets expected to appreciate to an irrevocable trust, with family members as beneficiaries. They could be a spouse, children, grandchildren, or future descendants. Such a trust also provides creditor protection, especially important when estates are large.
Inherited Retirement Accounts and Required Minimum Distributions
If you inherited an IRA before 2020, you’re exempt. However, anyone inheriting an IRA after 2020 may be subject to new Required Minimum Distributions (RMDs) starting January 1, 2025. The exceptions include being the spouse or a minor child or being less than ten years younger than the original account owner, and being disabled or chronically ill. Otherwise, you’ll have to withdraw the entire account by the tenth anniversary of the original owner’s death.
A few more details were added to this rule. If the deceased account owner was already taking Required Minimum Distributions (RMDs), the heir of the IRA is also required to take annual distributions. Suppose the original owner wasn’t required to take annual distributions upon death. In that case, the beneficiary can take withdrawals at intervals of their choosing, if the entire account is depleted within the ten years. Penalties for failing to take Required Minimum Distributions (RMDs) as required are high, so it is essential to consult with your estate planning attorney to ensure compliance with IRS rules.
Local Estate Taxes
Your estate planning attorney can guide you through the estate taxes in your state. Some states also impose inheritance taxes. The rate of the inheritance tax depends upon the relationship between the heir and the decedent. The estate typically pays the estate tax, and the heirs pay the inheritance tax. Some states impose both inheritance and estate taxes, while others do not.
Estate Issues Concerning Cryptocurrency
As more people invest in cryptocurrency, this intangible new asset class needs to be incorporated into the estate plan. You’ll want to name a digital executor who is familiar with this brave new world, as it has its own unique language and skill set. Someone who doesn’t know the difference between a cold wallet and an NFT won't know how to protect their digital wealth.
Talk with your estate planning attorney before too much of the year slips away. It takes time to plan and execute estate plans, and waiting until the fourth quarter of 2025 may not provide enough time to implement a plan to protect your estate.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. Schedule a quick and easy consultation with our estate planning attorney, Sedric E. Collins, Esq., or call 323-900-5450.
