Estate planning: navigate tax changes before 2025 expiration

What is estate planning?

While many people have a reasonable understanding of estate planning or have even taken some action for their situation, there are many elements that need to be considered. Estate planning is the process of organizing and managing your assets during your life and determining how they will be distributed upon your death. This involves creating a comprehensive set of legal documents, such as wills, trusts and powers of attorney, which collectively ensure that your wishes are respected, and your loved ones are taken care of after you're gone.

Effective estate planning can help you avoid the often lengthy and costly probate process, minimize tax liabilities and provide clarity and security for your beneficiaries. With the uncertainty surrounding potential tax law changes in 2026, reviewing and updating your estate plan is more essential than ever.

Why is estate planning important?

The importance of estate planning cannot be overstated. It allows you to control the distribution of your assets and make decisions about your healthcare in case you become unable to do so. Without a proper estate plan, your assets may be distributed according to state law rather than your personal wishes. This can lead to unintended consequences, such as estrangement among family members or prolonged legal battles.

Considering recent estate tax changes, it’s also vital to recognize how your estate plan can help mitigate tax burdens. By employing estate planning services, you can create a strategy that takes advantage of current exemptions and deductions while minimizing future tax liabilities.

Key areas to focus on

With the impending expiration of certain provisions of the TCJA, now is an opportune time to focus on specific areas within your estate plan. Here are some considerations to help you navigate these changes effectively:

• Reevaluate Roth IRA conversions
  Lower tax rates are currently in effect, making this an ideal time to consider converting a traditional IRA into a Roth IRA. This strategy allows for tax-free withdrawals (5 years following the conversion) in retirement and enables your heirs to receive assets without tax burdens. While you will need to pay taxes on the conversion upfront, it can be a beneficial move if executed correctly. Keep in mind that since 2018, Roth conversions cannot be undone, so careful assessment is necessary.
• Review deduction strategies
  In 2023, the TCJA nearly doubled the standard deduction, which significantly reduced the number of taxpayers who itemize deductions. It’s important to track your expenses closely and evaluate whether itemizing deductions still makes sense for your financial situation or if the standard deduction is more advantageous.
• Plan for upcoming estate tax changes
  One of the most pressing concerns in estate planning is the anticipated reduction in exemption amounts. Current laws state that the lifetime gift and estate tax exemptions, as well as generation-skipping transfer (GST) tax exemptions, are scheduled to revert to their pre-2018 levels in 2026. While this is not likely, the exemptions would drop to $7M per person ($14 million for married couples). For 2025 current exemption is $13.99 million per individual. Given the potential for legislative changes, it is crucial to stay informed and adjust your estate plan accordingly.
• Optimize charitable giving
  Charitable giving can play a significant role in your estate plan. Those aged 70½ and older can transfer up to $108,000 annually, for 2025, from a traditional IRA to a qualified charity without incurring taxes on that amount. Additionally, maximizing charitable contributions can help reduce your taxable estate and provide financial benefits for your heirs.

Consult with estate planning professionals

Navigating estate planning and understanding the complexities of tax changes can be challenging. Working with estate planning services and financial professionals can provide clarity and help ensure your estate plan aligns with your goals. These experts can help you take advantage of current laws while preparing for future changes.

Conclusion

Understanding what estate planning is and why it is important will empower you to make informed decisions about your future and the future of your loved ones. With various tax strategies at your disposal and the looming changes in estate tax law, now is the time to take proactive steps.

By reevaluating your assets, considering Roth IRA conversions and optimizing your charitable giving strategies, you can position yourself for success in the changing tax landscape. Confidence in your future starts with careful planning today. Contact a financial professional to discuss how you can best navigate the complexities of estate planning and the upcoming tax changes.