What Would an Estate Tax Repeal Mean For You?

25 Feb 2025 What Would an Estate Tax Repeal Mean For You?

Authored by RSM US LLP, February 25, 2025

It’s tempting to think that an estate tax repeal would be a welcome relief, freeing your family from the burden of estate tax and allowing you to preserve your hard-earned wealth for future generations. You might imagine estate planning would becoming a distant memory, finally crossed off your to-do list.

Although the new unified Republican government is discussing repealing the estate tax—currently a 40% tax on estates above $13.99 million for single individuals and $27.98 million for married couples—contrary to popular belief, estate planning may be more important than ever.

Estate planning deserves your attention, regardless of a potential estate tax repeal or the possibility that the temporarily increased exemptions will cut in half at the end of 2025. For both tax and non-tax reasons, estate planning is crucial for protecting your loved ones, preserving your wealth and securing your legacy.

Don’t forget about the gift tax and generation-skipping transfer tax

Even if the estate tax goes away, an outcome difficult to project, other federal transfer taxes, such as the gift tax and generation-skipping transfer tax (GSTT), may still be in effect. This means:

• Assets you transfer during your lifetime may still trigger the gift tax, so strategic planning remains essential.
• Assets transferred to grandchildren and others more than one generation removed from you could still be subject to tax (GSTT). This makes it important to intentionally and effectively utilize your generation-skipping tax (GST) exemption. Allocating your GST exemption to transfers protects them from the GSTT. Your GST exemption can only be used by you (unlike your estate exemption, which under current law can be used by a surviving spouse if not used during your life).

An estate tax repeal could impact income tax

One benefit in our current tax system is the “step-up” in basis rule. When appreciated assets are inherited (transferred at death), the cost basis is “stepped-up” to the fair market value at date of death. This step-up in value can help your family avoid significant capital gains taxes, and its importance should not be overlooked when considering the implications of repealing the estate tax.

While previously proposed legislation to repeal the estate tax maintained the step-up in basis, future legislation could alter or eliminate it. When was the last time you reviewed the value and cost basis of your both your illiquid and liquid assets?

• Capital gains taxes can soak up a large portion of your family’s inheritance. Will this tax put your legacy at risk without planning?
• A good estate plan considers legacy, transfer tax consequences and income tax consequences. Have you considered the income tax consequences of your estate plan?

Estate planning is not just about estate tax

Estate planning is about more than saving taxes. It is about fostering responsible stewardship and preparing the next generation to inherit not just wealth, but the knowledge to preserve and expand it for generations to come

Additionally, a poorly defined or nonexistent estate plan can lead to controversy, including disputes among family members, lack of continuity for your business, and significant financial burdens for your loved ones, even in the absence of an estate tax. Consider these key aspects of responsible wealth transfer:

• The existence of wealth does not cure all. It can take years, even with experienced and knowledgeable advisors, to understand how to manage that wealth. Instead of simply handing over a large sum when you die, consider a phased approach. Lifetime gifts can provide opportunities for your loved ones to learn and practice financial management on a smaller scale, building their confidence and competence before inheriting the full responsibility.
• Just as financial skills are developed over time, so too is the ability to lead and manage a business. Have you thought about what the future of your business looks like? Who would you want to continue the business and are they prepared to take on that responsibility? How do you ensure your children, or key employees, remain invested and motivated if they are putting in the hard work but lack a clear path to ownership? Consider implementing incentive structures, develop clear ownership transition plans, and provide leadership opportunities to nurture their readiness.

Do your family members understand your philanthropic goals? Do they know how you want your wealth to impact the community? A well-crafted estate plan should include open communication about your values, ensuring your legacy is not just about assets, but the principles that guided your life.

Empowering the next generation

While political discussions about changing the tax code will continue, one thing remains clear: A thoughtfully crafted estate plan is essential regardless of the current or future tax law. In fact, the absence of planning is a disservice to your loved ones. True stewardship requires proactive preparation.

Don’t wait for tax law changes to force you into a last-minute scramble. Embrace the opportunity to build a legacy of responsible wealth transfer. You can take steps now to prepare yourself and your loved ones with the knowledge, resources and values they need to thrive, ensuring your wealth becomes a tool for their empowerment and a reflection of your commitment to their future.

This article was written by Andy Swanson, Amber Waldman, Alexa Larson and originally appeared on 2025-02-25. Reprinted with permission from RSM US LLP.
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