Estate planning can feel like an overwhelming task, but careful preparation offers a powerful way to ensure your legacy, plan for your loved ones, and manage tax liabilities.
With 2025 well underway, it’s particularly important to focus on estate planning now, as potential changes to tax laws could have a significant impact on your plans. Whether you’re new to estate planning or revisiting your strategy, understanding the key elements is essential. Below, we’ve outlined major considerations based on our recent webinar, How to Approach Estate Planning in 2025.
Estate Tax Laws at a Glance
The federal estate tax applies to U.S. citizens and green card holders, taxing worldwide assets that exceed the exemption amount. For 2025, the federal estate and gift tax exemption is set at $13.99 million per individual, meaning married couples can use a combined exemption of $27.98 million if their estate plans are properly structured. However, assets exceeding this exemption are subject to a 40% tax rate. Additionally, there’s an annual gift tax exclusion, which allows individuals to give up to $19,000 per year to unlimited recipients without reducing their lifetime estate and gift tax exemption.
Some states impose their own estate tax, leading to important regional differences. For instance:
- Massachusetts has a $2 million exemption.
- New York’s exemption sits at $7.16 million.
- Connecticut’s exemption matches the federal level at $13.99 million.
Meanwhile, many states, including Florida and New Hampshire, do not have a state-level estate tax. Understanding where you stand geographically can make a big difference in your estate planning strategy.
A Possible Shift in Tax Guidelines
The federal estate tax exemption, which more than doubled under the Tax Cuts and Jobs Act of 2017, is set to “sunset” at the end of 2025. If Congress takes no action, the exemption will revert to its pre-2018 level of approximately $5.49 million, adjusted for inflation, which would bring the exemption to $X in today’s dollars. This potential decrease calls for consideration of proactive planning options to secure available benefits and explore solutions like lifetime giving or other estate planning strategies.
The Probate Process Demystified
Probate is often viewed as a cumbersome legal process because it involves court oversight of how a deceased person’s estate is managed and distributed. However, understanding the basics can make it less intimidating.
Probate is generally required for assets held in the decedent’s individual name without a beneficiary. Non-probate assets, such as those jointly owned or held in a trust, can bypass this process. It’s worth noting that designating beneficiaries on accounts holding retirement funds and life insurance policies is another effective way to avoid the probate process and its delay, expense, and publicity.
Still, probate plays an important role in ensuring legal clarity, especially when it comes to the validity of a Last Will and Testament. Naming a trustworthy personal representative (executor) is essential, as this individual will handle asset management, tax filings, and court interactions.
Key Estate Planning Documents
A comprehensive estate plan often includes the following documents:
- Last Will and Testament: Lays out your wishes for asset distribution, appoints a personal representative, and selects guardians for minor children.
- Revocable Trust: Allows assets to avoid probate and can specify how and when beneficiaries receive their inheritance. This is particularly useful in complex family situations or high-net-worth cases.
- Power of Attorney: Grants a trusted individual the authority to manage your financial affairs if you’re unable to do so.
- Health Care Proxy: Designates someone to make medical decisions on your behalf in cases of incapacity.
- HIPAA Authorization: Allows access to your personal medical information for those you name as representatives.
- Living Will: States your end-of-life care preferences to guide your health care proxy.
Each of these documents plays a distinct role in your overall estate plan. Together, they can ensure your wishes are honored, your loved ones are cared for, and your affairs are simplified.
The Importance of Planning Ahead
Staying ahead of legislative changes, such as the potential 2025 estate tax exemption reduction, can create opportunities to shield your estate from taxes and maximize your legacy. Acting now enables you to explore strategies like creating trusts, re-titling assets, or making tax-efficient gifts to loved ones and charities.
Additionally, life circumstances and laws evolve, so even if you already have an estate plan, revisiting it periodically is crucial. Are your named agents still the best choices? Have your family dynamics shifted? These are the kinds of questions thoughtful estate planning helps you answer.
Take the Next Step
Many people delay estate planning until it’s unavoidable, but taking action sooner rather than later can provide clarity and peace of mind. Whether you’re looking for ways to reduce taxes, minimize court involvement, or provide for your loved ones, a well-drafted plan is always worth the effort. At Howland Capital, we draw on decades of insight and a client-first approach to help you design a plan that can give you confidence and peace of mind.
If you’d like to discuss your unique estate planning needs or explore available strategies, get in touch with us today.
