What You Should Know About Estate Taxes This Year

The estate tax amount would be taken from the assets within your estate before they are passed onto your heirs. Ground Picture/Shutterstock

You likely have heard the saying that the only certain things are death and taxes. And then there’s the so-called “Death Tax.” Officially called the estate tax, this is a tax levied on assets above a certain amount transferred to heirs upon an individual’s death.

Thanks to the Tax Cuts and Jobs Act (TCJA) enacted during President Donald Trump’s first term, the amount that had to be breached to owe an estate tax was increased substantially.

For 2025, estate taxes are levied on an individual’s assets above $13.99 million. However, the estate-tax terms of the TCJA are set to “sunset” or expire at the end of 2025. So in 2026, the amount sheltered from estate taxes is set to diminish to $7 million (adjusted for inflation). This means that now is the time for affected individuals to reduce their taxable estate to avoid hefty taxes down the road.

Estate tax rates currently range from 18 percent to 40 percent. And the maximum is expected to remain at 40 percent at the sunset of the TCJA.

How Does the Estate Tax Work?

If you die in 2025, your assets valued at above $13.99 million that are transferred to heirs would face an estate tax up to 40 percent.

The IRS looks at all your assets in one snapshot to determine any estate taxes. Assets can include the following:

• cash
• money in bank accounts
• securities such as stocks, bonds, exchange-traded funds (ETFs), and mutual funds
• 401(k)s, individual retirement accounts (IRAs), and other retirement plan funds
• real estate
• vehicles

The estate tax amount would be taken from the assets within your estate before they are passed on to your heirs. It’s up to your estate executor to make sure these taxes are paid and that Form 706 is properly filled out. In addition, some states have their own estate tax. These are the states that charge estate tax, paid in addition to the federal estate tax.

• Connecticut​
• Hawaii​
• Illinois​
• Maine​
• Maryland​
• Massachusetts​
• Minnesota​
• New York​
• Oregon​
• Rhode Island​
• Vermont​
• Washington​
• District of Columbia

Exemption amounts and rates vary by state. Top estate tax rates range from 12 percent to 20 percent.

However, there are many ways to reduce your taxable estate.

Take Advantage of Gifting

In 2025, you can gift any individual assets of up to $19,000 without facing a gift tax. However, if you go above that amount for any individual, you’d need to report it on your tax return. You won’t owe a gift tax until you breach your lifetime gift tax exclusion. For 2025, that’s $13.99 million. But in 2026, that limit will drop to $7.2 million.

So if you give within your lifetime within these limits, you can essentially lower the value of your estate. Strategically done, it could help you reduce your taxable estate amount to the exemption levels. But there’s more you can do.

Give to Charity

Anything you pass on to an IRS-qualified charity generally won’t count toward gift tax, and it’ll reduce your taxable estate. You can work with an estate planning attorney to draft plans to send any amount over the estate tax exemption limit to be sent to a qualifying charity, effectively eliminating estate taxes.

Create an Irrevocable Trust

When you transfer assets to an irrevocable trust, it leaves your taxable estate. This is because you are no longer the owner of those assets; the trust is. Plus, any appreciation these assets generate happens outside your taxable estate. This means the intended beneficiaries can benefit from growth without having to give any of it up for estate tax purposes.

But there are some potential downsides to irrevocable trusts. Once you transfer assets to the trust, you can’t take them back, and you generally can’t change the named beneficiaries.

Plus, assets you transfer to irrevocable trusts are considered gifts to the trust. So it may eat away at your lifetime gift tax exemption, triggering gift taxes. So it’s important to work with a qualified estate planning expert when managing an irrevocable trust.

The Bottom Line

Most people won’t owe an estate tax. But that’s generally because the estate-tax exemption level of $13.99 million is so high. But along with many provisions of the TCJA, these rules are set to expire in 2026. If Congress fails to renew these provisions, the exemption amount is expected to revert to $7 million. This creates a sense of urgency for many affluent individuals.

Now is the right time to take a strategic approach to reducing your taxable estate. It’s important to note that transfers of assets to your spouse are always sheltered from estate taxes. But there are many steps you can take to reduce your taxable estate. You can take advantage of gifting, give to qualified charities, and create an irrevocable trust in your lifetime. It’s important to work closely with a qualified estate planning attorney to come up with a personalized strategy.

Nobody likes to think about their own mortality. But now is the time to begin taking steps to make sure your loved ones make the most of your legacy.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.