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IRS 2025 Revenue Proposals

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Potential Impacts to Estate Planning?

The Internal Revenue Service (IRS) has proposed several significant changes to the tax code as part of its revenue proposals for 2025. If enacted, these changes could have profound implications for estate planning. As estate law and financial professionals closely monitor these potential revisions, it’s crucial for individuals interested in safeguarding their wealth for future generations to stay informed about these impending changes.
The IRS’s 2025 revenue proposals target wealthy individuals, potentially impacting estate planning strategies. These proposals include raising the top income tax rate, taxing capital gains at death, eliminating the stepped-up basis for capital gains, limiting the annual gift exclusion, reducing the estate and gift tax exemption amount, and limiting the generation-skipping transfer (GST) tax exemption. Understanding these potential changes is vital to maintaining confidence in your estate planning strategy.
One of the crucial proposals is the plan to increase the top income tax rate from 37% to 39.6% for individuals earning more than $400,000 per year. This change alone could necessitate reviewing and possibly adjusting an individual’s current estate planning strategy.
Further, the IRS proposal suggests taxing unrealized capital gains at death. Currently, unrealized capital gains – the appreciation of assets not sold before death – are not subject to income tax. The new proposal intends to tax these gains, potentially creating a significant liability for estates with substantial appreciated assets.
Likewise, under the current law, inherited property receives a “stepped-up basis,” allowing the heir to avoid capital gains tax on the property’s appreciation during the decedent’s lifetime. The 2025 proposal aims to eliminate this benefit, significantly impacting estate plans structured around this provision.

Moreover, the IRS proposes to limit the annual gift exclusion, currently set at $18,000 per recipient. A reduction in the exclusion amount would prompt a reevaluation of gifting strategies within estate plans.

The IRS also proposes reducing the estate and gift tax exemption amount from the current historically high level of $13.6 million per individual. This significant reduction could increase the estate tax liability of larger estates.

Last, the proposed changes include capping the generation-skipping transfer (GST) tax exemption, which addresses transfers made to skip a generation, such as grandparent-to-grandchild transfers.
In conclusion, while the IRS’s 2025 revenue proposals are still in the proposal stage, their potential for enactment is significant. The scope of these changes would require careful examination and likely revision of numerous estate plans. It’s essential to seek guidance from financial, legal, and tax professionals experienced in estate planning to understand how these prospective changes may impact your wealth preservation strategy.

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