They say nothing in life is certain except for death and taxes. However, they should have also added one thing—changes in tax law.
Estimating and planning for estate taxes is an important step in your overall financial plan. This can help not only in preserving your estate but increase the chances of a smooth process for those you leave behind.
The federal unified tax system
Under federal law, certain property transfers and your estate are taxed under a unified gift and estate tax system. If you gift each year (not including charitable gifts) and stay under the annual exemption—$19,000 for calendar year 2025 per donor per donee—you do not have to file a federal form 709 to report your gifts. While gifting more than this amount may not result in taxes owed now, it may reduce your lifetime exemption. This becomes more important as you calculate your estimated taxable estate.
The 2025 federal estate exclusion for those who die in 2025 is $13,990,000. This is per person, so married couples have a combined amount of $27.98 million. There are circumstances (and requirements) that allow a surviving spouse to use their deceased spouse’s unused federal exemption. This is known as portability.
Keep in mind, there are 12 states and the District of Columbia that may impose an additional estate tax, including Illinois. In addition, six states may levy an inheritance tax. These amounts are in addition to the federal estate tax.
What’s included in your estate?
Estate tax is imposed on your “taxable estate,” which is the value of your gross estate reduced by various deductions.
Your estate includes property owned by you (or deemed to be owned by you) at the time of your death (the gross estate). This includes property that passes through probate and property inherited directly by joint owners or designated beneficiaries. Generally, your property includes real estate, personal property (e.g., cash, insurance proceeds, cars, furniture, jewelry, art objects), intangible property (e.g., copyrights, patents) and business interests.
The value assigned to each item is the fair market value (FMV) on the valuation date. FMV means the price at which property would sell for on the open market. The date of death is typically the valuation date. However, the executor may choose an alternate date for valuation of six months after the date of death. This may be beneficial if property decreases in value during the six-month period.
Taxable gifts made over your lifetime are added to your gross estate.
Certain amounts are excluded from, and deductions are subtracted from, your gross estate. The result is your taxable estate. The following deductions are allowed:
Certain expenses incurred by your estate, including funeral expenses; administration expenses (e.g., executor's or administrator's fees, court costs, attorney's fees and appraiser's fees); certain debts of the decedent; certain taxes; certain claims against your estate; and casualty losses suffered during the administration of your estate.
The unlimited marital deduction lets you deduct the value of property you leave to your spouse from your gross estate. Although this deduction is unlimited, only certain property interests qualify, and certain conditions and requirements must be satisfied. If your spouse is not a U.S. citizen, the marital deduction is generally not available unless you use a qualified domestic trust (QDOT) and is not unlimited.
The entire value of property you leave to a qualifying charity for public purpose is deductible from your gross estate. The amount is unlimited. Inheritance or estate taxes (collectively referred to as state death taxes) paid to states are also deductible from the gross estate.
Calculating the tax
After totaling your assets, adding back taxable lifetime gifts, estimating deductible expenses and arriving at your taxable estate, you need to consider your allowable federal estate tax exemption. If your projected estimated taxable estate is less than the federal exemption amount ($13.99 million for 2025), your estate would not owe taxes. However, taxable estates can reach tax rates of up to 40%. These amounts are based on current tax law—and “current” is the key word.
Tax laws change. Under the terms of the Tax Cuts and Jobs Act of 2017, the federal exemption almost doubled. However, that is set to expire at the end of 2025 without further Congressional action. What should you do in light of this uncertainty?
Start planning now
If all of this seems overwhelming, don’t let it be. There are steps you can take to preserve your wealth and reduce the probability of your estate being subject to taxes.
The experts at Busey Wealth Management are here to help you create a solid estate plan and provide peace of mind. To learn more about our services or find an advisor near you, visit busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.
