The 2025 Federal Estate Tax Cliff: Don’t Let FOMO Lead to Premature Decisions

As the 2025 federal estate tax exemption sunsets, many are feeling the pressure to act. However, rushing into estate planning decisions based on current uncertainty could lead to unnecessary complications. We recommend holding off for now until more clarity emerges from Congress.

ESTATE PLANNING

-alg

10/18/20243 min read

a red chair sitting on top of a balcony next to a building
a red chair sitting on top of a balcony next to a building

The Fear of Missing Out (FOMO) isn’t just for social media anymore. With the scheduled reduction of the federal estate tax exemption in 2025, many high-net-worth individuals and families are experiencing FOMO, worrying they might miss key opportunities to protect their estates. While this concern is understandable, making hasty decisions now could lead to unnecessary changes or financial regret down the road.

So, what exactly is happening, and why might it be better to wait before making significant moves in your estate plan? This article will walk you through the upcoming changes, highlight historical precedents, and explain why you should take a more measured approach instead of rushing to act.

The 2025 Federal Estate Tax “Cliff” Explained

Under the Tax Cuts and Jobs Act of 2017 (TCJA), the federal estate tax exemption increased to historic levels. For 2024, the exemption stands at $13.62 million per individual ($27.24 million for married couples), meaning most estates pass tax-free to heirs. However, this high exemption is set to expire on January 1, 2026, and revert to pre-TCJA levels—likely around $5 million per person (adjusted for inflation).

Understandably, many people are concerned that assets passed tax-free today could be heavily taxed in 2026. But Congress has the power to change this law, and it’s important not to let FOMO push you into premature decisions based on what might happen.

Learning from the Past: Rushed Decisions Can Lead to Regret

The uncertainty surrounding estate tax changes isn’t new. We've seen it before, and those who acted too hastily often regretted their decisions once Congress made last-minute changes.

The 2012 Estate Tax Scare

In 2012, the estate tax exemption was scheduled to drop significantly unless Congress intervened. Fearing higher taxes, many rushed to transfer assets before the end of the year. But, at the last moment, Congress passed the American Taxpayer Relief Act (ATRA), which preserved a higher exemption than anticipated. For many, their rushed planning caused unnecessary stress and complications.

2010: The Year Without an Estate Tax

In 2010, the estate tax was temporarily repealed, creating a unique opportunity for tax-free wealth transfers. However, this came at the cost of losing the step-up in basis, which triggered significant capital gains taxes for heirs when they sold inherited assets. The complexities of this brief period led to rushed decisions that weren’t always beneficial in the long term.

Why You Might Want to “Hang Tight” for Now

While we don’t recommend ignoring your estate planning entirely, we’re advising clients to pause on major decisions until we see what Congress does. There’s a high chance that lawmakers could take action, either extending the current exemption or providing a new solution before 2026.

In the meantime, keep your estate plan updated but avoid panic-driven moves like excessive gifting or restructuring that could have unintended consequences. The current estate tax exemption is still in place until the end of 2025, and there is time to make well-informed decisions as the legislative picture becomes clearer.

Proactive Strategies to Consider Once We Have Clarity

Once we have more information on what Congress will do, here are strategies you may want to consider based on your specific estate planning needs:

  1. Maximizing Lifetime Gifting
    While the current gift tax exemption is generous, large gifts made in haste could backfire if future laws change or if Congress adjusts the exemption in unexpected ways. Hang tight, and when the timing is right, you’ll still have the opportunity to make gifts strategically—without rushing.

  2. Spousal Lifetime Access Trusts (SLATs)
    SLATs remain a useful tool for those wanting to preserve wealth for future generations while maintaining flexibility. Once we see what Congress does, you may consider utilizing this strategy, but for now, there’s no need to rush into setting up new trusts.

  3. State-Level Estate and Inheritance Taxes
    Don’t forget about state-level taxes. While federal rules may change, many states have their own estate or inheritance taxes. Once Congress clarifies its stance on federal exemptions, you can work with your attorney to address both federal and state tax implications together.

  4. Charitable Giving
    Charitable trusts can help you reduce taxable estates, but these moves should be done thoughtfully and not in reaction to speculative changes. Hold off on creating any irrevocable trusts until we know what Congress plans to do.

Don’t Let FOMO Push You into Rushed Estate Planning

It’s easy to feel pressured by what might happen, but making significant estate planning decisions before Congress provides clarity could result in unintended financial and tax consequences. The current exemption remains in place through 2025, giving you ample time to make a measured decision once Congress acts.

At Ament Law Group, we are closely monitoring developments in Congress and will advise you as soon as we have more information. In the meantime, we recommend holding off on drastic estate planning measures and focusing on keeping your current plan updated.

When the time is right, we’ll help you navigate the changing tax landscape and ensure your estate plan reflects both the current law and your long-term goals.

Contact us today at 724-733-3500 to discuss your estate plan and stay informed as Congress works through these changes.