Five Considerations for Estate Tax Planning in 2025

As we near the end of 2024, it is important to be aware of possible tax law changes and reporting deadlines under the Corporate Transparency Act (CTA):

1. Gift, Estate and GST Tax Exemptions and Exclusions

The IRS recently released the 2025 inflation adjustments for the lifetime gift and estate tax and generation-skipping transfer (GST) tax exemptions and annual exclusions. The gift and estate tax lifetime exemption amount will increase from $13.61 million to $13.99 million per person in 2025 ($27.98 million per married couple). The GST tax exemption will also increase by the same amount.

In addition, the annual exclusion, which permits a donor to transfer a specified amount each year without consuming any of the donor’s lifetime gift and estate tax exemption, will increase from $18,000 to $19,000 in 2025 ($38,000 per married couple). Any gifts in 2025 to the same (non-charitable) recipient over this amount must be reported on a Form 709 (Gift Tax Return).

2. Possible Changes to Exemption Amounts

Under current law, the exemption amounts referenced above will be cut in half on January 1, 2026. This means that for an individual, the exemption amount for both the lifetime gift and estate tax and GST tax would drop to an estimated $7 million per person ($14 million per married couple). That figure will then be adjusted for inflation each subsequent year. The exemption cut would impact significantly more individuals than those currently affected.

However, given the Republican sweep in the 2024 elections, it is more likely that the current exemption amounts will be extended or possibly made permanent. It is important to note that this extension is by no means a guarantee. Careful attention should be paid as the new administration’s tax proposals are introduced (likely within the first half of 2025). We will continue to closely monitor the impact of this year’s elections on transfer tax laws and provide updates as Congress and the new administration take action.

3. Final SECURE Regulations

The IRS issued final Regulations, effective September 17, 2024, clarifying changes made by the SECURE Act and SECURE 2.0 to requirements for retirement plans. For more information on the SECURE Act and SECURE 2.0, see previous e-alerts (found here and here). The final Regulations confirmed that a plan participant’s Required Beginning Date (RBD) (i.e., the year in which the original account owner must begin taking Required Minimum Distributions (RMDs)) is as follows:

• Age 70-1/2, if the original account owner was born before July 1, 1949;
• Age 72, if the original account owner was born after July 1, 1949, but before January 1, 1951;
• Age 73, if the original account owner was born after January 1, 1951, but before January 1, 1959; and
• Age 75, if the original account owner was born after January 1, 1960

Under the SECURE Act, most non-spouse beneficiaries must fully withdraw inherited IRA accounts within 10 years of the original account owner’s death (10-Year Payout Rule). Under the new Regulations, if the original account owner died after their RBD, a beneficiary who is subject to the 10‑Year Payout Rule must annually take RMDs during the 10‑year period and cannot defer payment until the tenth year.

The rule requiring RMDs during the 10-year period applies to accounts inherited after 2019. However, due to COVID relief rules and IRS extensions, RMDs under this rule were not required in tax years 2020-2024. The Regulations make it clear that this RMD relief does not extend the 10-year deadline. For example, if a decedent passed away in 2020 after her RBD, her beneficiary did not have to take RMDs through 2024, but the beneficiary must begin taking RMDs in 2025 with distribution of the entire account prior to 2031.

The Regulations also confirm that a beneficiary of a Roth IRA subject to the 10‑Year Payout Rule does not have to take RMDs during the 10‑Year period.

4. Increased Limit for Qualified Charitable Distributions

Qualified Charitable Distributions (QCDs) allow IRA owners aged 70‑1/2 and older to make tax-free charitable donations directly from an IRA. The limit for QCDs will rise from $105,000 to $108,000 in 2025. Note that for those age 73 or older, QCDs also count toward the year’s RMD.

5. CTA Reporting Requirements

A federal district court in Texas issued a nationwide, preliminary injunction in early December, which halted enforcement of the CTA. However, the 5^th Circuit Court of Appeals lifted this injunction, pending a formal appeal at the 5^th Circuit level. For now, the year-end statutory deadline for CTA filings remains in effect. Reporting companies required to file a Beneficial Ownership Interest Report by December 31, 2024 must do so, and should keep a close eye on this appeal and other developments to determine ongoing CTA compliance. For more information about the CTA, see our previous e-alerts (found here and here).

UPDATE: As of December 26, 2024, the Appellate Court has lifted its own stay on the injunction and the CTA is now enjoined again pending its expedited appeal. Reinhart will continue to monitor updates.

We have discussed important topics to consider for your 2025 tax planning including increased transfer tax exemption amounts, the impact of the recent election on transfer tax law, the final SECURE regulations and the recent developments regarding the CTA. If you would like more information regarding considerations for your estate planning in 2025, please contact your Reinhart attorney or a member of our Trusts and Estates Practice.