Estate Planning Law Alerts

March 11th, 2025

Estate Planning Update

While the estate and gift tax exemption is at an all time high in 2025, this could change dramatically in 2026. Accordingly, for 2025, please consider the following updates and planning considerations.

Federal Tax Laws

Estate, Gift and Generation-Skipping Transfer ("GST") Tax

The Federal estate, gift and GST tax exemption amounts have all increased in 2025 to $13.99 million per individual (up from $13.61 million in 2024). This means that an individual may now transfer a total of $13.99 million free of Federal estate, gift and GST taxes, and married couples may transfer a total of $27.98 million. This increased exemption can be applied to lifetime gifts, or, to the extent not used during lifetime, to the individual's estate.

Absent intervening legislation, the Federal exemption amount will revert to approximately $7 million (i.e., $5 million, as adjusted for inflation from 2018) on January 1, 2026. Although not clear at this point, there is increased speculation as to whether the current high exemption amounts will be extended. The higher exemption amounts create significant estate planning opportunities, at least through December 31, 2025

Annual gift tax exclusions are available in addition to the Federal gift tax exemption. Each year an individual may make gifts of any amount up to the annual exclusion to an unlimited number of recipients without using up any part of such individual's Federal gift tax exemption. Beginning in 2025, the annual gift tax exclusion is $19,000 per recipient.

State Tax Laws

When evaluating your estate plan, it is also important to consider the impact of applicable state laws, for example:

New York

As of January 1, 2025, the New York estate tax exemption amount is $7.16 million per individual (up from $6.94 million in 2024). The benefit of the exemption is "phased out" for taxable estates between 100% and 105% of the exemption amount, and eliminated entirely for taxable estates that exceed 105% of the exemption amount. As a result of this "cliff" tax, in 2025, if a taxable estate exceeds $7.518 million, the exemption is not available and the entire taxable estate will be subject to the New York estate tax. Unlike Federal law, New York does not allow for "portability" of the New York exemption between spouses, so it is important to implement planning that will effectively utilize the New York estate tax exemption of both spouses.

There is no separate gift or GST tax in New York. However, taxable gifts made by a New York resident (i) prior to December 31, 2025 and (ii) within three years of death are included in such individual's New York taxable estate.

Connecticut

The Connecticut estate and gift tax exemption continues to match the Federal exemption (as adjusted for inflation) (i.e., $13.99 million per individual; a total of $27.98 million for married couples). Connecticut, like New York, does not allow for "portability" of the Connecticut estate tax exemption between spouses. There is no separate GST tax in Connecticut.

New Jersey

New Jersey imposes an inheritance tax, which is based on the relationship between the decedent and the beneficiary. Transfers to a spouse, child, stepchild or grandchild of the decedent are exempt from inheritance tax. There is no separate estate tax, gift tax or GST tax in New Jersey.

Individual Retirement Accounts

The SECURE Act (as amended in 2022) enacted several changes to the rules affecting distributions from inherited IRAs. Effective January 1, 2025, eligible designated beneficiaries (i.e., surviving spouse, minor child, disabled or chronically ill individual or an individual who is not more than ten years younger than the IRA owner) may withdraw the balance of an inherited IRA over the eligible beneficiary's lifetime, whereas non-eligible designated beneficiaries, such as adult children, must draw down the IRA within 10 years of the IRA owner's death. In addition, if the IRA owner had already begun taking required minimum distributions, non-eligible designated beneficiaries must adhere to the deceased IRA owner's required minimum distribution schedule during the 10-year distribution period. Non-designated beneficiaries (i.e., estate or charity) must withdraw the balance of an inherited IRA within 5 years of the IRA owner's death, if the IRA owner died before they were subject to taking required minimum distributions. If the IRA owner had already begun taking required minimum distributions, non-designated beneficiaries must continue taking required minimum distributions over the deceased IRA owner's remaining life expectancy.

If you have questions about these recent changes, or about other estate and tax planning matters, please contact Linda J. Wank at (212) 826-5546 or lwank@fkks.com, Barbara E. Shiers at (212) 826-5526 or bshiers@fkks.com or Adam J. Osterweil at (212) 785-4861 or aosterweil@fkks.com, or any other member of the Frankfurt Kurnit Estate Planning & Administration Group.