Estate tax planning can be complex, especially with changing tax rules. In 2025, the federal estate tax exemption is at a recorded high of $13.99 million ($27.98 for married couples) which reduces estate tax worries for many taxpayers. However, this will decrease to approximately $5 million (adjusted for inflation) at the end of 2025. To minimize taxes and make the most of your legacy, now is the perfect time to review your estate plan.

The estate tax exemption is set to drop as of 1/1/2026. Here are some strategies to consider while the current exemption remains high.

Benefits of the annual exclusion

The gift tax annual exclusion allows you to transfer assets during your lifetime to reduce potential estate taxes. Assets you give, along with any future appreciation on them, are removed from your estate.

Of course, due to the large current exemption, estate tax savings may not be a high concern for many people. However, recipients that receive these gifts also inherit your original cost basis; possibly introducing future capital gains tax liabilities.

If your estate is unlikely to incur estate taxes, it might be better to consider other factors when deciding to make a gift.

What strategies can I implement?

Do you have a family member interested in starting a business or purchasing a home? Gifts can come in handy here. Keep in mind, however, that gifting appreciated property may create capital gains tax for the recipient when they sell the asset. If you hold onto the asset until death, current laws grant your heirs a step-up in basis, eliminating capital gains tax on appreciation that occurred during your lifetime.

Can you take advantage of portability while the exemption remains high?

Definitely! Previously, spouses often used complex strategies to balance their estates to maximize the estate tax exemption. This often involved creating a two-trust plan to reduce estate taxes. Since 2011, “portability” allows a surviving spouse to inherit a decedent’s unused exclusion amount, known as the Deceased Spousal Unused Exclusion Amount (DSUEA), which the surviving spouse can apply to their own estate. As long as the portability election is made, this option gives married couples more flexibility in estate planning.

What about valuation discounts?

Under the current high exemption, certain valuation strategies historically used for reducing estate tax inclusion, such as estate exclusion or valuation discounts, may be less beneficial. Instead, you might consider retaining assets within your estate to qualify for a step-up in basis. For instance, “special use valuation,” which assesses qualified real property based on actual use (rather than potential highest use), may not provide enough estate tax benefit to offset the loss of a step-up in basis.

Wondering how you can make the most of the high exemption while it sticks around? We can help.