Estate planning in 2025 has undergone one of the most significant shifts in decades. For years, financial advisors, attorneys, and families were bracing for the scheduled “sunset” of the federal estate and gift tax exemption at the end of 2025. That change would have cut the amount of wealth families could transfer without taxes nearly in half, creating uncertainty and urgency for high-net-worth households.
But in July 2025, Congress passed the One Big Beautiful Bill Act, which reshaped the estate planning landscape. Instead of seeing the exemption shrink, families can now plan with long-term confidence. The law not only made the higher limits permanent but also increased them further beginning in 2026 and tied them to inflation starting in 2027.
This article takes a deep dive into what changed in 2025, why it matters, and how families can make the most of the new rules. Whether you are an heir, a parent planning for your children’s financial future, or an advisor helping clients navigate wealth transfer strategies, understanding these updates is critical.
The Estate and Gift Tax: A Quick Refresher
Before unpacking the 2025 changes, it’s important to understand the basics of the
For 2024, the unified exemption was set at $13.61 million per individual, or $27.22 million for married couples who combine their exemptions. In practice, this meant that the overwhelming majority of Americans did not have to worry about paying any federal estate tax, since only the portion of wealth above those levels would ever be taxed. To put this into perspective, fewer than 1 out of every 1,000 estates actually faced a federal estate tax bill under these thresholds. This unusually high exemption amount wasn’t permanent—it was a direct result of the 2017 Tax Cuts and Jobs Act (TCJA), which temporarily doubled the lifetime exemption. While the higher limit provided significant relief to wealthy families seeking to pass on businesses, real estate, or investment assets, it was always understood that the provision had an expiration date. Without further action by Congress, the exemption was scheduled to fall dramatically at the end of 2025, potentially pulling many more estates back into the federal estate tax system.
The Original 2025 Sunset Rule
When the Tax Cuts and Jobs Act (TCJA) was enacted in 2017, one of its most significant provisions for wealthy households was the temporary doubling of the estate and gift tax exemption. This higher threshold allowed individuals and families to transfer substantially more wealth free of federal estate or gift tax.
However, this expanded exemption was never meant to last forever. Under the law, it was scheduled to “sunset” after December 31, 2025, reverting to about half of its current level:
- Approximately $7 million per individual
- Approximately $14 million for married couples
This rollback represented more than just a technical adjustment. For many affluent families, it meant that estate planning strategies would have to shift dramatically. Households with estates in the $7–14 million range per person—previously safe from estate tax exposure—could suddenly find themselves facing significant tax liabilities.
Wealth advisors often described this as a classic “use-it-or-lose-it” dilemma. Families had to ask themselves:
- Should they make substantial lifetime gifts now, securing the higher exemption before it expired—even if that meant parting with assets earlier than planned?
- Or should they hold onto their wealth, accepting the risk of a much lower exemption and potentially millions in additional estate tax exposure after 2025?
This looming deadline created urgency in estate planning conversations, pushing many to consider advanced wealth transfer strategies well ahead of the 2025 sunset.
The One Big Beautiful Bill Act: July 2025
In July 2025, Congress passed and the President signed into law the One Big Beautiful Bill Act—a sweeping piece of legislation that made permanent changes to the federal estate and gift tax system.
Key Highlights:
- Higher Exemptions Made Permanent
Instead of shrinking, the exemptions were locked in and expanded:- $15 million per individual
- $30 million for married couples
These new limits take effect in 2026.
- Inflation Adjustments Starting in 2027
Beginning in 2027, these exemption amounts will be indexed to inflation. This ensures that as the cost of living increases, so too does the estate tax shield, preserving its real-world value. - No Clawback of Gifts
Families who used the higher exemption before 2025 are not penalized. The IRS confirmed there will be no “clawback,” meaning lifetime gifts made under the higher exemption remain valid, even though the exemption structure changed. - Long-Term Certainty for Planners
For the first time in years, families and advisors can plan without the looming threat of an expiration date. This stability transforms estate planning from a rushed deadline-based process to a thoughtful, long-term strategy.
Read also-How to Avoid Capital Gains Tax on Real Estate
Why This Matters for Families
The 2025 changes impact more than just billionaires. Many families with business holdings, real estate, farms, or investments fall into the exemption range. Here’s why the law matters:
- Eliminates Deadline Pressure: Families no longer need to rush trusts and gifts before December 31, 2025.
- Protects Generational Wealth: Higher exemptions mean more assets pass tax-free to heirs.
- Encourages Charitable Planning: With higher exemptions, families can align philanthropy with estate goals.
- Inflation Proofing: Adjustments beginning in 2027 ensure the benefit keeps pace with economic changes.
Read Also-How Much Money Can You Inherit Without Paying Taxes on It
Smart Moves for 2025 Heirs
Now that the rules are clear, families should consider these strategies:
Use the Annual Gift Exclusion
You can gift up to $19,000 per recipient, per year tax-free in 2025. For married couples, that doubles to $38,000. Over time, these gifts remove significant wealth from an estate without touching the unified exemption.
Maximize the Unified Exemption
Families with large estates should consider making lifetime transfers. With the exemption permanently higher, you can confidently transfer assets up to $15 million per person without worrying about losing the benefit later.
Establish Trusts for Wealth Management
Trusts like irrevocable trusts, generation-skipping trusts, and charitable remainder trusts offer tax savings while also providing control and protection for heirs.
Consider Business Succession Early
Business owners should use the expanded exemptions to transfer ownership stakes, often at discounted valuations, through Family Limited Partnerships (FLPs) or LLCs.
Blend Charitable Giving with Planning
Charitable donations not only support causes you care about but also reduce the taxable estate. Donor-advised funds and charitable trusts are powerful vehicles.
Regularly Review Plans
Even with higher exemptions, estate plans should be reviewed every few years—or whenever major life events occur—to ensure they reflect current goals, tax laws, and family dynamics.
State Tax Considerations
While the federal estate tax exemption is quite generous — set at $13.61 million per individual in 2025 — families should not overlook the state-level estate and inheritance taxes that may still apply. These state taxes often come with much lower exemption thresholds, meaning estates that avoid federal tax liability may still face significant state-level obligations.
Key State Examples
- Washington State
Washington imposes one of the nation’s lowest estate tax exemption thresholds at $2.193 million per person in 2025. Rates are progressive, ranging from 10% to 20%. For high-value estates, this can result in substantial state tax bills, even when the estate falls well below the federal exemption level. - Minnesota
Minnesota sets its estate tax exemption at $3 million, with rates starting at 13% and climbing as high as 16%. Unlike some states, Minnesota does not impose an inheritance tax, but its relatively low exemption means many middle- to upper-income households can be affected. - Maryland
Maryland is unique in that it imposes both an estate tax and an inheritance tax. The estate tax exemption currently aligns closer to the federal level, but its inheritance tax applies to property passed on to certain heirs, such as siblings, nieces, nephews, and unrelated beneficiaries. Spouses, parents, and children are typically exempt. - New Jersey
New Jersey repealed its estate tax in 2018, eliminating one of the most burdensome state estate taxes in the country. However, the state still maintains an inheritance tax, which applies when assets are transferred to individuals outside of the immediate family. For example, nieces, nephews, and friends may be taxed at rates of up to 16%. - Nebraska
Nebraska continues to enforce inheritance taxes, and the rules can vary by county. The tax rate depends largely on the beneficiary’s relationship to the deceased. Immediate family members such as spouses and children may pay little to nothing, while distant relatives or unrelated heirs may face higher rates, sometimes up to 18%.
Broader Implications
Changing Laws: State thresholds, exemptions, and tax rates can change frequently. Families should monitor updates and revisit their estate plans regularly to ensure compliance and optimization.
Middle-Class Impact: Because some states have much lower thresholds than the federal exemption, even families with modest wealth by national standards may face estate or inheritance taxes at the state level.
Variability by Relationship: Inheritance taxes — unlike estate taxes — depend on the heir’s relationship to the deceased. Spouses and children are usually exempt, but siblings, nieces, nephews, and non-family heirs often are not.
Planning Importance: Proper estate planning can help reduce or mitigate exposure to state-level taxes. Techniques such as lifetime gifting, use of trusts, and charitable contributions can be tailored to align with each state’s tax rules.
Frequently Asked Questions (FAQ)
1. Will estate tax exemptions go down in 2026?
No. The One Big Beautiful Bill Act made higher exemptions permanent and increased them further starting in 2026.
2. What is the estate tax exemption for 2026?
$15 million per individual and $30 million for married couples.
3. Will the exemption adjust for inflation?
Yes. Starting in 2027, the exemption will be tied to inflation and increase annually.
4. Do all heirs pay estate taxes?
No. Only estates exceeding the exemption are taxed. Many heirs pay nothing. However, some states impose their own inheritance or estate taxes.
5. Is there a clawback for gifts made before 2025?
No. Gifts made under the old higher exemption remain valid and protected.
6. Should middle-class families worry about this law?
Most middle-class households won’t be affected, since their estates fall well below the federal exemption. But families in states with separate estate or inheritance taxes may still face liability.
Practical Example
Imagine a married couple with an estate worth $25 million in 2025.
- Before the law change: They were preparing for a 2026 exemption of about $14 million, leaving $11 million exposed to estate tax.
- After the law change: With a $30 million exemption starting in 2026, their entire estate is shielded from federal estate tax.
This simple shift saves the family millions and allows them to focus on charitable giving, business succession, and multi-generational planning instead of scrambling to avoid taxes.
Looking Ahead: Estate Planning in a New Era
The 2025 law marks a new chapter in estate planning. Instead of working against the clock, families can now create thoughtful, intentional strategies that protect wealth across generations.
The permanence of the exemption, combined with inflation adjustments, provides long-term stability—something the estate planning community has been lacking for years.
For heirs, this means:
- Greater certainty in what they’ll inherit
- Fewer surprises around tax bills
- More opportunity to structure wealth for the future
For advisors, this means:
- Better alignment of strategies with client goals
- Freedom to design multi-year or even multi-decade plans
- Reduced pressure from looming legislative changes
Final Thoughts
The One Big Beautiful Bill Act of 2025 is more than just a tax update—it’s a complete reset of how families approach estate planning. By locking in high exemptions, expanding them further in 2026, and indexing them to inflation starting in 2027, the law gives heirs, families, and advisors the tools they need for confident, long-term planning.
Now is the time to review estate strategies, update trusts, and consider wealth transfer opportunities. Whether your estate is modest or substantial, understanding the 2025 changes ensures your family is prepared for the future.