Wealthy Ease Back on Rush to Use Expiring Estate Tax Break

The pressure on wealthy Americans to use their elevated estate tax exemption has eased as former President Donald Trump heads back to the White House.

The current lifetime estate and gift tax exemption, at $13.99 million for 2025, is set to fall by about half at the end of next year.

Republicans doubled the exemption amount as part of their 2017 tax overhaul. Individuals who have more than the exemption amount in gifts or in their estate face a 40% transfer tax. High-net-worth people give money to heirs, trusts, or charity to try to avoid paying that tax.

Congress is gearing up for a major tax debate in 2025 as other provisions of the 2017 law also expire. The framework of the debate has become a bit clearer since Election Day when Republicans took control of the Senate and Trump won the White House, strongly suggesting an extension of many of the provisions, including the estate tax exemption.

“We’ll continue to see gifting, it’ll just be drawn out over next year rather than happening right now,” said Andrew Sakalarios, a Crowe LLP principal.

Previewing 2025 Tax Talks

A Democrat-controlled Congress likely would have let the doubled exemption expire. Many Democrats campaigned on a tax-the-rich agenda and intended to pay for tax cuts in other areas by raising rates back up for wealthy individuals.

The Biden administration previously had pledged not to increase taxes on anyone making below $400,000.

“There’s probably an audible sigh of relief from those that would have been subject to some of the Democratic tax ideas, such as taxing unrealized gain,” said Sarah Allen-Anthony, a Crowe partner and global private client services leader.

Republicans, longtime supporters of repealing the estate tax entirely, want to extend the increased exemption.

But the estate tax exemption is just one piece of the 2017 law expiring, and lawmakers will have to find ways to offset at least some of extended or new tax cuts. The Congressional Research Service estimated that extending the elevated estate tax provision would cost $126 billion over the next 10 years.

Justin Miller, national director of wealth planning at Evercore Wealth Management LLC, said it’s possible that price tag could steer Republicans away from extending the exemption. Compared to other issues such as income tax rates, the estate tax doesn’t affect many voters.

With the House still undecided after the Nov. 5 election, a divided government may mean the entire 2017 tax law expires if lawmakers can’t agree.

Preparing for Exemption Sunset

Rich people have been offloading their wealth for the past year gearing up for the expiration. It’s often a lengthy process to give away large amounts of wealth, especially for hard-to-price assets that need appraisals, such as closely held businesses or art.

“It’s worth it to be prepared,” said Carole Bass, a partner specializing in estate planning at Sullivan & Worcester LLP. Some people are getting appraisals but holding off on actually gifting assets until the fate of the exemption is more clear.

Ultra-wealthy individuals have likely already used up their lifetime estate and gift tax exemption. But individuals whose estates are worth around or less than the elevated exemption amount have been more cautious. For example, a couple with $35 million may not feel comfortable giving away around $26 million. They’ll have to ensure they balance keeping enough money to maintain their lifestyles with trying to take advantage of the elevated exemption, Bass said.