(MSN) - The new omnibus budget bill sets the federal estate-tax exemption at $15 million for the next year and provides for the threshold to remain permanently high — but that does not take estate planning off your to-do list. The need for wills, trusts and other paperwork lives on, driven by many other forces than tax avoidance.
“The estate tax could apply after $100 million or be gone altogether, and things would still be the same,” said Steve Lockshin, a financial adviser and co-founder of Vanilla, an estate-planning platform for professionals.
What’s the point, then, of keeping the federal estate tax in place? The $15 million threshold for 2025, or $30 million for a couple, is so high that it applies in less than 1% of cases. The grand total in 2019 was 1,275 instances of federal estate taxes paid, about 100 times less than it would have been if the estate-tax exemption limit had remained steady since 2000, according to a study by the Wharton School of Business. Those few estates generated about $9 billion in actual tax revenue, but would have generated $85 billion if the exemption limit were lower.
Much of the American tax system is built on a “pay now or pay later” premise. You put away tax-deferred dollars for retirement in a 401(k) or IRA and then, eventually, the IRS wants its cut and requires you to start taking out minimum distributions. You can bypass this with a Roth 401(k) or Roth IRA, but then you pay the tax before the money goes into the accounts. The same sort of system applies when you buy a stock or other securities, and you only pay capital-gains tax upon the sale. If you hold on to the assets, you don’t pay tax except on dividends and other annual income.
The idea of the federal estate tax is that death is the time that you pay the tax on the assets you accumulated in your life — like you are cashing out a highly appreciated stock and the capital-gains tax is finally due. Of estates over $100 million, 55% of the assets are unrealized capital gains that have never been taxed, according to Federal Reserve data analyzed by the Center on Budget and Policy Priorities. It’s a trade-off, of sorts, because your assets generally otherwise pass tax-free to the next generation, and your heirs get inheritances like property and securities at today’s market value, and life insurance is tax-free.
The exemption amount has varied over the years since 1916, when it was implemented at $5 million. It went as high as $50 million and as low as $2 million, and the tax rate jumped around from 10% to 70% to the current rate of 40%.
What a family pays in estate tax depends what’s counted in the taxable estate, which is essentially a person’s entire net worth that they have gathered in their lives — cash, stocks, bonds and property — minus liabilities like debt and funeral expenses. This is where estate planning can come in for those near the exemption limit. With the careful transfer of assets, you can exclude a lot from a taxable estate. Everything can pass from one spouse to the other with an unlimited marital exemption, for starters. When it comes to passing to the next generation and charity, you can employ a number of strategies with trusts to reduce or eliminate an estate-tax liability.
Sarah Gaymon, a CPA who specializes in trusts and estates for Berkowitz Pollack Brant in Miami, sometimes has clients who owe some federal estate tax, but they usually are able to avoid much of it.
“The majority of the cases I see do not pay tax on the estate of the first spouse to die, but when the second spouse dies, there may be some tax,” she said. “For the ultrahigh net worth, an extra million is not going to move the needle very much.”
Reasons for estate planning
Here’s the catch: In the absence of any estate tax at all, those wealthy families would not have done anything differently, Gaymon surmised. The way planning works in those situations is just the same as any family would do, regardless of the level of wealth — just with more zeros. It breaks down to these simple choices: who gets what and when do they get it. A simple will can do a lot of this work, but trusts tend to be more efficient for passing property and other complex assets from one generation to the next or to charity.
“It’s about control, and also about clarity and intention,” said Gaymon, a CPA who specializes in trust and estates. “You want to be clear in what you would like to give to someone. In the absence of planning, we default to state laws. It can be vastly different from what you’d want to give to heirs.”
Estate planning, despite the name, is about a lot more than the dollar value you leave behind at death. A comprehensive plan typically includes incapacity documents like a power of attorney, healthcare proxy, HIPAA authorization and a living will, plus a will or a trust for handling a person’s affairs after death.
“This is also a pay now or pay later issue,” said Lockshin. If you pay a few thousand dollars for these documents upfront, you pay less later on, when not having them may cost tens of thousands of dollars. “And if you don’t do it, your family has to deal with all this mess,” Lockshin added.
Lockshin was partially inspired to start his estate-planning platform because of the trouble he had settling his mother’s estate. She had a bank account he didn’t know about and it cost him six months and hours on the phone, plus a trip to probate court, in order to settle the matter.
Gaymon has also seen a lot of tumult and stress in families that haven’t planned properly. With one family, the patriarch was worth $80 million and died before signing his estate-planning papers. “That resulted in significant estate tax,” she said. It was also a second marriage, and the deceased had not updated his IRAs in some time — which the estate planners would have caught if they had more time — and his first wife inherited all that money, which was not his intent. Also, he was not able to set up trusts for the children of his first, so they would have been cut out if not for the generosity of the stepmother.
“I don’t think we’ll be out of jobs,” said Gaymon of the effect of the new tax bill. “If anything, it creates more stability for our jobs, because the planning will be more focused on a client’s intent and not just the estate tax.”
By Beth Pinsker
July 4, 2025
