The federal estate tax has long been a concern for wealthy individuals and families looking to preserve their wealth across generations. While the vast majority of Americans never encounter this tax, those who do often face significant planning decisions. For 2025, the IRS has once again adjusted the estate tax exemption upward in line with inflation. But this increase might only be temporary.
As we edge closer to the sunset of the Tax Cuts and Jobs Act (TCJA) at the end of 2025, tax professionals, estate planners, and high-net-worth individuals are paying closer attention. The big question looming is whether the current generous exemption levels will stay — or revert to pre-TCJA levels in 2026, cutting the exemption nearly in half.
At the same time, new proposals from House Republicans are on the table, aiming to lock in and even expand these exemptions permanently. In this blog, we’ll break down what’s currently in effect, what could change, and what you need to consider today — whether you’re managing your own estate or advising someone who is.
Understanding the Current Estate Tax Exemption for 2025
IRS-Adjusted Estate Tax Exemption for 2025
As of January 1, 2025, the federal estate tax exemption has been adjusted once again to reflect inflation — rising to:
- $13.99 million for single filers
- $27.98 million for married couples filing jointly
This is a notable increase from the 2024 thresholds, which stood at $13.61 million (single) and $27.22 million (married). The IRS updates these numbers annually under provisions in the Tax Cuts and Jobs Act (TCJA), which tied the exemption to the Chained Consumer Price Index (C-CPI-U) — a slightly slower-growing measure of inflation compared to traditional CPI.
Who Actually Pays the Estate Tax?
It’s important to put these numbers into perspective. With the exemption now close to $14 million per individual, less than 0.1% of estates in the U.S. are projected to owe any federal estate tax at all in 2025. For most Americans, this tax is irrelevant. However, for ultra-high-net-worth families — particularly those with real estate holdings, business interests, or family trusts — the implications are significant.
This high exemption allows for substantial lifetime wealth transfers, strategic gifting, and legacy planning — all without triggering federal estate taxes. But these benefits are potentially short-lived. Unless Congress acts, the exemption could fall to around $6–7 million per person starting in 2026, depending on inflation.
The Federal Estate Tax Rate Table
While the exemption protects most estates, those that do exceed the threshold face a steep tax structure. The federal estate tax is progressive, meaning the larger the estate above the exemption, the higher the effective tax rate.
Here’s the tiered tax rate applied to taxable estate values above the exemption threshold:
| Taxable Amount Over Exemption | Rate |
| $0 to $10,000 | 18% |
| $10,001 to $20,000 | 20% |
| $20,001 to $40,000 | 22% |
| $40,001 to $60,000 | 24% |
| $60,001 to $80,000 | 26% |
| $80,001 to $100,000 | 28% |
| $100,001 to $150,000 | 30% |
| $150,001 to $250,000 | 32% |
| $250,001 to $500,000 | 34% |
| $500,001 to $750,000 | 37% |
| $750,001 to $1 million | 39% |
| Over $1 million | 40% |
Example: How the Tax Applies to a $15 Million Estate
Let’s say a single individual passes away in 2025 with an estate valued at $15 million. Here’s how the tax works:
- Exemption: The first $13.99 million is exempt.
- Taxable Estate: The remaining $1.01 million is subject to estate tax.
- Tax Calculation: The taxable portion is taxed progressively — meaning it’s not all taxed at 40%. Instead, each portion is taxed according to the rate brackets shown above until the last dollar falls in the top 40% bracket.
Here’s a rough breakdown:
- First $10,000 over the exemption: taxed at 18% → $1,800
- Next $10,000: taxed at 20% → $2,000
- Next $20,000: taxed at 22% → $4,400
- … and so on, up to the $1.01 million taxed at varying rates.
The effective tax paid would be a little over $345,000, though the final number depends on deductions and the specific breakdown of the estate’s valuation. If you’re working with business assets or hard-to-value real estate, valuations and discounts can impact the total taxable amount.
State Estate and Inheritance Taxes Still Apply
Even if your estate doesn’t owe anything to the IRS because it falls under the federal exemption — it doesn’t mean you’re completely in the clear. That’s because some states impose their own estate or inheritance taxes, and the exemptions in those states are usually much lower than the federal threshold.
As of 2025, 12 states plus the District of Columbia still have a state-level estate tax, and 6 states impose an inheritance tax. A few even have both, depending on the situation. These taxes can significantly affect how much of your estate is ultimately passed on to heirs — especially if you live in or own property in one of these states.
While the federal exemption is nearing $14 million per person, many state exemptions are as low as $1 million. That means families who don’t consider themselves “wealthy” by federal standards may still be liable for state estate taxes.
What’s the Difference Between an Estate Tax and an Inheritance Tax?
- Estate tax: Paid by the estate before assets are distributed to heirs. The tax is based on the total value of the deceased’s estate.
- Inheritance tax: Paid by the heirs after receiving their inheritance. The rate usually depends on the heir’s relationship to the deceased (closer relatives typically pay less or are exempt).
In short: estate tax affects what’s left behind, while inheritance tax affects what the heirs receive.
States with a State-Level Estate Tax (2025)
As of now, the following jurisdictions have a state estate tax:
| State | Estate Tax Exemption | Top Tax Rate |
| Connecticut | $13.85 million | 12% |
| District of Columbia | $4.71 million | 16% |
| Hawaii | $5.49 million | 20% |
| Illinois | $4 million | 16% |
| Maine | $6.41 million | 12% |
| Maryland | $5 million | 16% |
| Massachusetts | $2 million (as of 2023 law change) | 16% |
| Minnesota | $3 million | 16% |
| New York | $6.94 million | 16% |
| Oregon | $1 million | 16% |
| Rhode Island | $1.774 million | 16% |
| Vermont | $5 million | 16% |
| Washington | $2.193 million | 20% |
Note: These exemption amounts may change annually based on inflation or state legislation, but they remain significantly below the federal exemption.
States with an Inheritance Tax
Only six states impose an inheritance tax in 2025:
| State | Inheritance Tax Rate | Exemptions for Family |
| Iowa* | Up to 15% | Phasing out by 2025 (0% after Jan 1) |
| Kentucky | Up to 16% | Spouses and children usually exempt |
| Maryland | Up to 10% | Spouses, children, and parents exempt |
| Nebraska | Up to 18% | Spouses exempt; reduced rates for others |
| New Jersey | Up to 16% | Spouses, children, and parents exempt |
| Pennsylvania | Up to 15% | Spouses exempt; children pay 4.5% |
Important: Maryland is the only state that has both an estate tax and an inheritance tax, which means double exposure is possible depending on your estate’s structure and beneficiaries.
Why This Matters for Estate Planning
If you live in one of the states listed above — or own real estate or business property in those states — your estate might be subject to state taxes even if it’s well below the federal threshold.
Here’s how this might affect your estate:
- A person living in Oregon with an estate worth just $2 million could face state estate tax on $1 million, even though that estate would owe nothing to the IRS.
- A child inheriting property from a parent in Pennsylvania could face a 4.5% inheritance tax, regardless of the overall estate value.
That’s why it’s critical not to ignore state-level planning when creating your will or setting up trusts. The rules vary widely by jurisdiction, and many states don’t offer the same portability, deductions, or gifting flexibility found in the federal system.
The Risk Ahead — Sunset of TCJA and the 2026 Cliff
While the 2025 federal estate tax exemption seems generous — nearly $14 million per person — there’s a major catch: it’s temporary. This high exemption was created under the Tax Cuts and Jobs Act (TCJA) of 2017, but unless Congress takes specific action, this benefit is set to expire, or “sunset,” at the end of 2025.
When that happens, the federal estate tax exemption is expected to fall roughly in half, back to about $6 million per person, adjusted for inflation. This change alone could bring thousands of previously unaffected families into the estate tax system, possibly without them realizing it.
What Happens If Congress Doesn’t Act?
The TCJA was written with a sunset provision, which means many of its tax cuts — including the enhanced estate tax exemption — automatically expire after a set time unless renewed by Congress. This type of legislation helps reduce the long-term impact on the federal budget, but it also creates uncertainty for individuals planning their financial future.
Here’s how the federal estate tax exemption has changed since 2018 under TCJA:
| Year | Estate Tax Exemption (Single) | Married Filing Jointly |
| 2018 | $11.18 million | $22.36 million |
| 2019 | $11.4 million | $22.8 million |
| 2020 | $11.58 million | $23.16 million |
| 2021 | $11.7 million | $23.4 million |
| 2022 | $12.06 million | $24.12 million |
| 2023 | $12.92 million | $25.84 million |
| 2024 | $13.61 million | $27.22 million |
| 2025 | $13.99 million | $27.98 million |
| 2026 (projected) | ~$6 million | ~$12 million |
⚠️ Without action from Congress, this will effectively cut the estate tax shield in half beginning January 1, 2026.
That means any portion of your estate above ~$6 million (or ~$12 million for married couples) would be subject to federal estate tax, with rates ranging from 18% to 40%.
How This Could Catch Families Off-Guard
Many people assume that the estate tax only affects ultra-wealthy families with hundreds of millions in assets. But under the lower exemption projected for 2026, a much wider group will be exposed — particularly those who have accumulated generational wealth, real estate, and retirement assets.
Let’s look at a realistic example:
A married couple owns:
- A small business valued at $3 million
- A family home worth $1.5 million
- Two rental properties totaling $2 million
- Life insurance policies with $1 million in death benefit
- Retirement savings and investments worth $2.5 million
Total estate value: $10 million
In 2025, that couple would be well below the $27.98 million exemption and owe no federal estate tax. But in 2026, with the exemption possibly falling to ~$12 million for couples, their estate could be partially taxable, depending on valuation changes and other assets.
Even single homeowners in high-cost states like California or New York, with decades of 401(k) growth and some modest inheritance, could cross the $6 million threshold with surprising ease.
Assets That Add Up Quickly
Families are often unaware of what counts toward their taxable estate. These commonly overlooked assets could push an estate over the exemption limit:
- Privately held businesses or LLC interests
- Life insurance (if the policy is owned by the deceased or within their control)
- Appreciated real estate (rental homes, commercial buildings, family farms)
- Stocks and brokerage accounts
- Retirement accounts like traditional IRAs or 401(k)s
- Collectibles or valuable art
It’s not uncommon for professionals, especially those in fields like medicine, law, tech, or business ownership, to build estates that unintentionally exceed $6 million to $10 million over a lifetime — especially with real estate appreciation and investment growth factored in.
What the GOP’s New “One Big, Beautiful Bill” Proposes
With the clock ticking on the sunsetting provisions of the Tax Cuts and Jobs Act (TCJA), House Republicans have put forward a sweeping tax package — publicly described by GOP leadership as “One Big, Beautiful Bill.” At its core, this bill is about making permanent several key provisions of the 2017 TCJA, many of which are scheduled to expire after December 31, 2025.
Among the most significant proposals is a permanent increase in the federal estate tax exemption, which would essentially lock in and slightly raise the elevated thresholds established under the TCJA. This could have a major impact for wealthy individuals and families concerned about estate tax exposure after 2025.
While the bill is still in draft form and faces legislative hurdles, Republicans have made clear their intention to move quickly — aiming to begin votes between Memorial Day and the Fourth of July, well before the 2025 sunset becomes a political flashpoint during the election cycle.
Estate Tax Proposal Highlights
Here’s what the current GOP proposal includes for the federal estate tax:
- Permanently raise the federal estate tax exemption to:
- $15 million for single filers
- $30 million for married couples
- $15 million for single filers
- Index the exemption amount to inflation, starting after 2025.
This move would prevent the automatic rollback of the exemption to pre-TCJA levels — roughly $6.4 million per person in 2026 (adjusted for inflation) — and instead preserve and increase the current high thresholds.
To put this in perspective:
Under current law, a married couple can shield $27.98 million from federal estate taxes in 2025. If the TCJA sunsets, that drops to around $13 million.
Under the GOP proposal, that limit would rise to $30 million and stay there — indexed for inflation, effectively removing uncertainty for high-net-worth families planning long-term wealth transfers.
This proposal, if passed, would primarily benefit the top 0.1% of estates, similar to current TCJA policy. The majority of Americans would continue to face no federal estate tax, but the proposal gives ultra-high-net-worth individuals more certainty in planning trusts, gifts, and other legacy strategies without fear of a sharp tax increase after 2025.
Other Key TCJA Provisions in the Bill
While the estate tax changes are significant, the bill goes well beyond that. GOP lawmakers are looking to cement the broader framework of the TCJA, touching nearly every individual taxpayer in some way.
Here are the other major provisions included in the draft:
- Maintain the expanded standard deduction:
- Continues the nearly doubled standard deduction from the TCJA.
- This means fewer people would itemize deductions going forward.
- Continues the nearly doubled standard deduction from the TCJA.
- Extend the expanded Child Tax Credit (CTC):
- Keeps the CTC at its current levels, which is higher than pre-TCJA but less generous than the temporary 2021 expansion.
- Makes the credit partially refundable and indexed to inflation.
- Keeps the CTC at its current levels, which is higher than pre-TCJA but less generous than the temporary 2021 expansion.
- Continue the repeal of personal exemptions:
- Personal exemptions were eliminated under the TCJA.
- This provision maintains that repeal, meaning taxpayers wouldn’t get separate deductions for each family member.
- Personal exemptions were eliminated under the TCJA.
- Maintain lower individual income tax rates:
- Keeps in place the compressed and reduced marginal tax brackets (e.g., 12%, 22%, 24%, etc.) versus the pre-2018 rates.
- Keeps in place the compressed and reduced marginal tax brackets (e.g., 12%, 22%, 24%, etc.) versus the pre-2018 rates.
- Preserve the 20% qualified business income (QBI) deduction:
- Particularly beneficial for pass-through entities like S-corporations, partnerships, and sole proprietors.
- This has been especially popular among small business owners and professionals.
- Particularly beneficial for pass-through entities like S-corporations, partnerships, and sole proprietors.
GOP Timeline and Strategy
GOP lawmakers are aiming for a swift timeline for action. Here’s what they’ve outlined:
- Memorial Day (late May): Begin House deliberations and committee markups.
- Fourth of July recess: Target for a full House vote before Congress breaks for the holiday.
While Democrats are unlikely to support the bill in its current form — especially the estate tax increases — Republican leadership is expected to use it as a messaging tool ahead of the 2024 election and possibly again in 2025, when both the White House and both chambers of Congress could be up for grabs.
IRS Clarification on “Clawback” Rules
Can the IRS Tax Gifts Made Under Higher Exemptions After 2026?
This is one of the most common — and important — questions that high-net-worth individuals ask when planning gifts and transfers before the estate tax exemption potentially drops in 2026.
The concern is simple:
If someone uses the current $13.99 million (single) or $27.98 million (married) gift and estate tax exemption today — and the exemption is later reduced (likely around $6–7 million per person in 2026) — will the IRS “claw back” the difference and apply tax retroactively?
In other words, can the IRS retroactively tax gifts that were exempt when they were made, just because the exemption amount later decreased?
The answer, based on the IRS’s final regulations issued in 2019, is no — and this has been reaffirmed in updated guidance.
What Is the IRS “Anti-Clawback” Rule?
In 2019, the IRS issued final regulations (TD 9884) confirming that gifts made under the higher lifetime exemption in effect at the time of the gift will remain tax-free, even if the exemption amount is reduced in the future.
This is often referred to as the anti-clawback rule, and it essentially protects taxpayers who take advantage of the higher exemption before it sunsets.
Here’s how it works in practice:
- Say you gift $11 million to your children in 2025, when the exemption is $13.99 million.
- If the exemption drops to $6.8 million in 2026, the IRS will not retroactively tax the $4.2 million difference.
- The IRS respects the exemption in effect at the time of the gift, not the one in place at the time of death.
This final rule gives certainty to taxpayers — especially those considering large transfers now but worried about a tax hit later.
Why It Matters Right Now
With the current exemption scheduled to sunset after December 31, 2025, time is limited for those looking to maximize lifetime gifts. After 2025, if Congress does nothing, the exemption will revert to pre-TCJA levels, adjusted for inflation — cutting it roughly in half.
Here’s the implication:
If you wait until 2026 and Congress doesn’t act, your ability to transfer wealth tax-free could be reduced by $7 million or more per person — a significant missed opportunity.
That’s why many tax professionals are encouraging eligible clients to use up the current exemption now, especially if:
- You have a taxable estate or anticipate one in the future;
- You have appreciating assets you want to remove from your estate;
- You’re comfortable with irrevocable transfers and long-term wealth planning.
What Happens Next? Timing, Politics, and Uncertainty
Can the GOP Pass This Bill in Time?
Even though the House Republicans are proposing to make the current estate tax exemption permanent, the path ahead is filled with political hurdles — and time is running out.
In early 2025, the IRS set the estate tax exemption at $13.99 million per person, adjusted for inflation under the Tax Cuts and Jobs Act (TCJA). But this amount will automatically drop back to about $7 million per person starting January 1, 2026, unless new legislation is passed. That’s a sharp cut — and one that could double the number of taxable estates overnight.
The new bill introduced by House Republicans — H.R. 7361, or the “Death Tax Repeal Act of 2024” — seeks to repeal the estate tax entirely, or at the very least, make the current exemption permanent. But even within the GOP, priorities are not aligned — and that’s where things get complicated.
Internal Divisions Within the GOP
According to reporting by Politico, the House GOP is struggling to unify around a consistent tax policy agenda. While some Republican lawmakers are focused on full estate tax repeal, others are prioritizing business tax breaks or middle-class relief. Estate tax reform — which mainly affects the ultra-wealthy — isn’t a top-tier issue for everyone in the party.
Some Republicans argue that locking in the estate tax exemption is essential to support family-owned farms and small businesses, especially in rural districts. Others are concerned that pushing forward a policy seen as a “tax break for billionaires” could hurt the party’s message heading into the 2024 and 2026 elections.
This internal conflict means that even though Republicans control the House (as of mid-2025), the chances of quickly passing this bill remain uncertain.
Pushback from Democrats and Moderate Republicans
The Democratic Party remains firmly opposed to repealing or extending estate tax relief for the ultra-wealthy. Many Democrats have long argued that the estate tax helps reduce income inequality and ensures that large generational wealth transfers are taxed fairly.
In fact, several Democratic proposals in recent years have aimed to go the opposite direction — lowering the exemption, raising the estate tax rate, or removing popular planning tools like valuation discounts and GRATs (grantor retained annuity trusts).
Even some moderate Republicans have expressed discomfort with supporting estate tax repeal, especially if it means increasing the federal deficit or cutting back on social spending programs to fund it. For them, supporting estate tax breaks is a political risk in more balanced or suburban districts.
The 2024 Election and the Legislative Window
One of the biggest variables is the political calendar. With the 2024 elections behind us and a new Congress taking shape in January 2025, the balance of power in both the House and Senate — along with who holds the presidency — will determine the fate of this bill.
Here’s what we know:
- If Republicans control the House, Senate, and White House in 2025, there’s a stronger chance that the bill could pass — especially if it’s part of a larger tax reform package.
- If Democrats control one or both chambers, the bill will likely stall or be heavily modified.
- The 2025 legislative window is narrow. Most major tax policy decisions will need to be made before the TCJA provisions sunset at the end of 2025. After that, the exemption will automatically revert to pre-2018 levels.
What to Watch For
As of now, here are a few important developments to keep an eye on:
- Budget negotiations: Estate tax changes may be used as a bargaining chip in broader fiscal or tax reform talks.
- Public messaging: Expect both parties to frame this issue in very different ways — as either a “small business saver” or a “giveaway to the rich.”
- IRS guidance: If the exemption does drop in 2026, the IRS is expected to issue updated instructions to clarify how lifetime gifts made under the higher exemption (2018–2025) will be treated. So far, they’ve confirmed these gifts won’t be “clawed back” — a critical point for those planning large transfers in 2024–2025.
What You Can Do Today — Action Plan for 2025
As we look ahead to the end of 2025, the window of opportunity for estate planning could be closing fast. Unless Congress steps in with new legislation, the federal estate tax exemption is set to fall by nearly half on January 1, 2026 — impacting more families than ever before.
Even if your estate isn’t currently subject to federal estate tax, it may be wise to plan as if the exemption were about to shrink. That’s because estate planning isn’t just about what your assets are worth today — it’s about preserving wealth, minimizing taxes, and ensuring a smooth transfer to your beneficiaries tomorrow.
The real challenge?
The current exemption is temporary. And there’s no way to know whether Congress will extend it, revise it, or let it expire. That makes 2025 a critical planning year for anyone with an estate approaching or exceeding $3–5 million.
Here’s how to get ahead of what could be the biggest shift in estate taxation in over a decade.
Estate Tax Planning Checklist
This checklist is designed to help you take actionable steps today — not wait until it’s too late.
✅ 1. Get a Current Estate Valuation
Before any planning can begin, you need to understand what your estate is actually worth. This includes:
- Real estate (primary home, rental properties, vacation homes)
- Investment portfolios (stocks, bonds, mutual funds, etc.)
- Retirement accounts
- Business ownership or equity in a company
- Life insurance (yes, life insurance proceeds are included in your estate)
- Personal property and collectibles
If you haven’t done a professional valuation recently, 2025 is the time to schedule one. With inflation and asset growth, many estates that were once below the threshold could now be in danger of becoming taxable in 2026.
✅ 2. Talk to a CPA or Estate Attorney
The tax code is complex, and the rules for estate planning can vary greatly depending on your state, your assets, and your family structure. Speaking with an experienced CPA or estate attorney can help you identify opportunities such as:
- Strategic gifting to reduce your taxable estate
- Creating or modifying trusts
- Valuation discounts for closely held businesses
- Options for portability of the unused exemption if one spouse passes
Don’t wait until the end of the year. Planning early gives you more flexibility — and potentially fewer tax headaches later.
✅ 3. Consider Using Part of Your Lifetime Gift Exemption
The lifetime gift tax exemption is tied directly to the estate tax exemption, which means you can give away up to $13.99 million in 2025 without triggering federal gift taxes (or $27.98 million if you’re married).
If you’ve been thinking about transferring wealth to your children or grandchildren, 2025 may be your last chance to do so under today’s generous limits.
Important: If the exemption reverts in 2026, gifts made before that date will still be protected under the current rules. This is known as the anti-clawback provision, confirmed by IRS regulations.
✅ 4. Review Existing Trust Structures
Trusts remain one of the most effective tools for wealth transfer and estate tax reduction. If you already have one in place, it’s important to review it regularly — especially as laws and exemption thresholds change.
Some trust strategies to consider in 2025:
- Irrevocable Life Insurance Trusts (ILITs) to remove life insurance proceeds from your estate
- Grantor Retained Annuity Trusts (GRATs) to transfer appreciating assets with minimal tax
- Spousal Lifetime Access Trusts (SLATs) to provide for a spouse while locking in today’s exemption
- Dynasty Trusts for multi-generational tax planning
Trusts should reflect your current goals — not just the laws from when they were created.
✅ 5. Track Legislative Updates Closely
House Republicans have already proposed legislation that would make the current exemption permanent — but that’s far from guaranteed. The political landscape can change quickly, especially with a presidential election approaching. Depending on which party controls Congress in 2025, we could see:
- A full sunset of the current exemption
- A partial compromise with a lower exemption
- A permanent extension or expansion of the TCJA provisions
None of these scenarios are certain, which is why the safest move is to plan based on what we know today, not what might happen tomorrow.
Conclusion
For years, estate planning seemed like a concern only for billionaires and family dynasties. But with the current exemption on the chopping block and the rising value of real estate, retirement accounts, and business equity, many more families may find themselves subject to estate tax starting in 2026.
If your estate is worth $3 million, $5 million, or more, you’re not just on the radar — you may be well within reach of future tax liabilities. And even if you’re below today’s threshold, a market boom, a business sale, or an inheritance could change that quickly.
The time to act is now. Don’t assume that Congress will step in. And don’t wait until next year to start the conversation.