July 3, 2025 • 8 mins
What Are Estate Taxes?
I. What is the Death Tax?
· There has been a lot of talk this week about the Trump Tax Bill, what is in it, what’s included, and in my practice this always conjures up talk about the death tax or the estate tax.
· The estate tax is a tax assessed on the total value of your assets which transfer at death to heirs or beneficiaries.
· As of 2025, the estate tax only applies for estates worth more than $13.99 million per individual, or $27.98 million for married couples who elect portability upon the death of the first spouse’s death.
· You can leave an unlimited amount of assets at death to your spouse without incurring estate taxes. However, this means that the estate tax exemption is wasted upon the death of the first spouse. Portability permits the transfer of this unused estate tax exemption to the surviving spouse creating a $27.98 million estate tax exemption for the surviving spouse in 2025.
· If you have an estate that exceeds this threshold, the excess is taxed at rates up to 40%. · If you have an estate worth $15 million, only $1.01 million above the exemption is taxable. · However, this high exemption is currently temporary. Unless Congress acts, it’s set to sunset to approximately $7 million per person starting in 2026, subjecting more estates to the estate tax. · Under the Biden Administration, there was discussion of reducing the estate tax exemption to $3.5 million. Under the new Trump Tax Bill proposal, there is discussion in making the exemption $15 million per individual in 2026 and making the exemption permanent.
· Therefore, we are in this waiting period on how new estate tax legislation will affect estate planning going forward.
II. State Estate Taxes and Inheritance Taxes
· There are some states which impose their own estate taxes and inheritance taxes.
· Unlike estate taxes, which is paid by the estate, inheritance taxes are paid by the persons inheriting the assets.
· Kentucky inheritance tax can reach as high as 16%, however, close family members, such as spouse, children, grandchildren, siblings, are exempt from the inheritance tax.
· It is important to watch out for inheritance taxes if your state has an inheritance tax which applies.
III. How Do You Limit Estate Taxes
· There are ways to limit estate taxes when your estate may be subject to estate taxes. · Lifetime Gifting
o You can gift up to $19,000 per person annually without touching your lifetime exemption.
o You can gift $13.99 million in taxable gifts during your lifetime. However, every taxable gift you make, reduces your lifetime exemption from the estate tax, so you need to be careful.
o A couple could gift $38,000 to each child or grandchild every year
· Irrevocable Trusts
o Transferring assets to an irrevocable trust can remove those assets from your taxable estates
o One such option is with an Irrevocable Life Insurance Trust
§ This is a trust in which the death benefit that pays upon your death will be owned by the ILIT.
§ This can provide a cash free benefit for your beneficiaries named in the trust. However, it can also be used to provide liquidity for anticipated federal estate taxes.
§ I have represented many family farms in the past, and the issue in those situations are that the estate will be taxable, but there is very little liquid assets. The surviving family would not want to sell the farm just to pay the taxes. This is where an ILIT can be very beneficial.
· Charitable Giving
o Donating to charities through your estate reduces your taxable estate and can offer income tax deductions.
o Charitable trusts to benefit both a charity and your heirs can be especially beneficial
IV. How to Plan in 2025
· With the federal exemption set to be cut in half and no idea when Congress is going to act, 2025 is a critical year to act and engage in estate tax planning.
· Portablity lets the surviving spouse inherit the deceased spouse’s unused estate tax exemption.
· However, you must file an estate tax return to claim it.
· Higher net worth families might lock in the current $13.99 million exemption before it shrinks with a Spousal Lifetime Access Trust
· Don’t forget to review your plan annually – asset values can grow faster than you expect, pushing you over exemption limits.
I. What is the Death Tax?
· There has been a lot of talk this week about the Trump Tax Bill, what is in it, what’s included, and in my practice this always conjures up talk about the death tax or the estate tax.
· The estate tax is a tax assessed on the total value of your assets which transfer at death to heirs or beneficiaries.
· As of 2025, the estate tax only applies for estates worth more than $13.99 million per individual, or $27.98 million for married couples who elect portability upon the death of the first spouse’s death.
· You can leave an unlimited amount of assets at death to your spouse without incurring estate taxes. However, this means that the estate tax exemption is wasted upon the death of the first spouse. Portability permits the transfer of this unused estate tax exemption to the surviving spouse creating a $27.98 million estate tax exemption for the surviving spouse in 2025.
· If you have an estate that exceeds this threshold, the excess is taxed at rates up to 40%. · If you have an estate worth $15 million, only $1.01 million above the exemption is taxable. · However, this high exemption is currently temporary. Unless Congress acts, it’s set to sunset to approximately $7 million per person starting in 2026, subjecting more estates to the estate tax. · Under the Biden Administration, there was discussion of reducing the estate tax exemption to $3.5 million. Under the new Trump Tax Bill proposal, there is discussion in making the exemption $15 million per individual in 2026 and making the exemption permanent.
· Therefore, we are in this waiting period on how new estate tax legislation will affect estate planning going forward.
II. State Estate Taxes and Inheritance Taxes
· There are some states which impose their own estate taxes and inheritance taxes.
· Unlike estate taxes, which is paid by the estate, inheritance taxes are paid by the persons inheriting the assets.
· Kentucky inheritance tax can reach as high as 16%, however, close family members, such as spouse, children, grandchildren, siblings, are exempt from the inheritance tax.
· It is important to watch out for inheritance taxes if your state has an inheritance tax which applies.
III. How Do You Limit Estate Taxes
· There are ways to limit estate taxes when your estate may be subject to estate taxes. · Lifetime Gifting
o You can gift up to $19,000 per person annually without touching your lifetime exemption.
o You can gift $13.99 million in taxable gifts during your lifetime. However, every taxable gift you make, reduces your lifetime exemption from the estate tax, so you need to be careful.
o A couple could gift $38,000 to each child or grandchild every year
· Irrevocable Trusts
o Transferring assets to an irrevocable trust can remove those assets from your taxable estates
o One such option is with an Irrevocable Life Insurance Trust
§ This is a trust in which the death benefit that pays upon your death will be owned by the ILIT.
§ This can provide a cash free benefit for your beneficiaries named in the trust. However, it can also be used to provide liquidity for anticipated federal estate taxes.
§ I have represented many family farms in the past, and the issue in those situations are that the estate will be taxable, but there is very little liquid assets. The surviving family would not want to sell the farm just to pay the taxes. This is where an ILIT can be very beneficial.
· Charitable Giving
o Donating to charities through your estate reduces your taxable estate and can offer income tax deductions.
o Charitable trusts to benefit both a charity and your heirs can be especially beneficial
IV. How to Plan in 2025
· With the federal exemption set to be cut in half and no idea when Congress is going to act, 2025 is a critical year to act and engage in estate tax planning.
· Portablity lets the surviving spouse inherit the deceased spouse’s unused estate tax exemption.
· However, you must file an estate tax return to claim it.
· Higher net worth families might lock in the current $13.99 million exemption before it shrinks with a Spousal Lifetime Access Trust
· Don’t forget to review your plan annually – asset values can grow faster than you expect, pushing you over exemption limits.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
You're listening to Simply Money, presented by all Worth Financial
on Bob's fond Seller along with Brian James. Joined today
by our estate planning expert, Dan Perry from the law
firm of Wood and Lamping. Dan, thanks so much for
being with us today. And I know you want to
talk about a very loaded topic, and that's estate taxes.
Speaker 2 (00:23):
There's been a lot of talk this week about the
Trump tax bill. You know what's in it, what's included,
And any time Congress proposes any kind of tax change,
in my world, people always talk about the death tax
or the estate tax. So the estate tax is a
tax that is assessed on the total value of your
(00:44):
assets which transferred death to your heirs or beneficiaries you know,
including you know, your property, your financial accounts, everything in
your name. And as of twenty twenty five, the estate
tax only applies for a state's work more than thirteen
point ninety nine men million dollars per individual, or twenty
seven point nine to eight million for married couples who
(01:05):
elect what's called portability upon the death of the first spouse.
You see, you can leave an unlimited amount of property
and assets at death to your spouse without incurring estate taxes. However,
this means that that estate tax exemption I just mentioned
is more or less wasted to due to the death
of the first spouse, and portability permits the transfer of
(01:28):
that unused a state tax exemption to the surviving spouse,
which creates a twenty seven point nine eight million dollars
state tax exemption for that surviving spouse.
Speaker 3 (01:37):
Again, I'm dealing with a situation where related to portability
as we're speaking, and then and the thing that occurs
to me, I'm not an attorney, and thankfully we have
people like you to help us through these situations. But
portability in my brain used to be called an A
and B bypass trust. I know those are very different
things and are not as related as I'm pitching them
to be here, But can you can you kind of
weigh in on if I do nothing, I can simply
file an IRS form and I've and I've taken advantage
(01:59):
of both tax ex credit. How is that different from
the old A and B bypass approach.
Speaker 2 (02:03):
So yeah, there's in order to gain to gain portability,
you do have to file the state tax return and
elect portability upon the death of surviving spouse. The old
ab trust of more or less is directing the trustee
upon the first spouse's death to elect that before it's
(02:24):
to elect that portability. But it's very important to file
that a state tax return. There are time limits. You
don't want elect it. It can be wasted. Now with
a state taxes, the current is the current rate for
the state taxes can be as high as forty percent.
So as an example, even a state worth fifteen million,
(02:46):
only one point zero one million above that exemption is
going to be taxbule. However, this high exemption is currently
temporary unless Congress acts, it's set to sunset or expire
down to approximately seven million per person starting in twenty
twenty six, subjecting more estates to the estate tax. Under
(03:06):
the Biden administration, there was a discussion of reducing the
estate tax exemption to three and a half million, and
the new Trump tax bill proposal has discussion about raising
that exemption to fifteen million per person. Now, in addition
to estate taxes, certain states also have a state taxes. Luckily,
Ohio isn't one of them. Kentucky does have what's called
(03:29):
an inheritance tax. So unlike a state taxes where which
is going to be paid by the estate. Inheritance taxes
are going to be paid by the persons in inheriting
those assets. The Kentucky inheritance tax can reach as high
as sixteen percent. However, close family members such as spouse's children, grandchildren,
and siblings are exempt from that inheritance tax, but it's
(03:52):
important to watch out for inheritance taxes if you are
in a state where the inheritance tax would apply. There
are also a variety of ways to limit estate taxes,
and one of the most common ways is with lifetime gifting.
You can gift up to nineteen thousand dollars per person
annually without touching what's called your lifetime lifetime exemption from
(04:15):
the gift tax. You see, you can gift away thirteen
point ninety nine million dollars in taxable gifts during your lifetime,
and that would be a gift in excess of that
nineteen thousand dollars per year. But every taxable gift you
make reduces your lifetime exemption from the estate tax, so
you need to be careful. So, for example, a couple
(04:36):
could give thirty eight thousand dollars to each child or
grandchild nineteen thousand times too, without even making any taxable gifts.
Another ways by transferring assets to an irrevocable trust to
remove those assets from a person's taxable estate. And one
option is with what's called an irrevocable life insurance trust,
(04:57):
and that is a trust in which the death benefit
pays upon your death will be owned by the irrevocal
life insurance trust, what we call an islet, and this
can provide a cash fery benefit to your beneficiaries named
in the trust, but it can also be used to
provide liquidity for anticipated federal state taxes. So I've represented
many family family farms in the past, and an issue
(05:21):
that's common in that situation is that we have a
taxable estate, but there is very little liquid assets, and
the surviving family doesn't want to be put in a
situation that sell the family farm just to pay the
estate tax. And that's where an islet can be very
beneficial and provide that necessary liquidity to pay those anticipated
(05:42):
the state taxes. Another option is with charitable giving where
you can donate, where donating to charities is going to
reduce your state and reduce your taxable state as well
as offer some income tax deductions. Charitable trust can also
be used on common examples, what's called a charitable remainder trust,
(06:03):
and that's where you gift assets into a trust. You
get an income tax deduction to the year you make
the gift, You h an income stream comes back to
you for a set number of years, and at the
end st number of years, the balance of that trust
goes to the charity and that and that gift is
removed out of your taxable estates. And those are just
(06:23):
a few examples.
Speaker 1 (06:26):
All right, Dan, As we get through the second half
of twenty twenty five, here we could be just hours,
if not just days away from some kind of new
tax bill getting passed through Congress. What are you seeing?
I know you guys follow this stuff closely. What are
you seeing in terms of numbers for where that estate
tax exemption on the federal side, where do you think
(06:46):
that's ultimately going to settle out?
Speaker 2 (06:49):
So, as of right now, if Congress does nothing, which
is possible in twenty twenty six, we're gonna have a
seven million dollar state tax exemption per person ability will
still exist. So if family could pass fourteen million without
a state taxes, the Trump tax bill has have put
in a proposal of a fifteen million dollar exemption. At
(07:13):
what we're seeing right now is that there you know,
there's a lot of negotiation and discussion between both political
parties that and I would be surprised if we settle
on a fifteen million dollar exemption. What we're what we're
thinking is likely going to happen is somewhere between seven
million and fifteen million dollars is going to be the exemption.
Speaker 1 (07:33):
What's your best advice now for families how to plan
here during the second half of twenty twenty five based
on what we know and I guess just as importantly
what we don't know.
Speaker 2 (07:44):
So with the only guarantee right now is that the
federal exemption is going to be cut in hack going
to be cut in half as nothing happens. So twenty
twenty five is a critical year to engage in a
state tax planning portability. Again, Let's that surviving house use
the UNDEA, spouse's unused the state tax exemption. And you
(08:05):
know what we're thinking families should do is they may
want to lock in that current thirteen point nine to
nine million dollar exemption and get you know, essentially fourteen
million dollars out of their estate before this state tax
exemption expires. But with all this planning, you should also
be reviewing things annually because asset values can grow faster
(08:27):
than you expect and can push you over those exemption limits.
Speaker 1 (08:30):
All right, great stuff as always from Dan Perry, our
estate planning expert from the law firm of Wood and Lamping.
Thanks so much.
Speaker 2 (08:37):
Dan.
Speaker 1 (08:38):
You're listening to Simply Money, presented by all Worth Financial
on fifty five KRC, the talk station
You're listening to Simply Money, presented by all Worth Financial
on Bob's fond Seller along with Brian James. Joined today
by our estate planning expert, Dan Perry from the law
firm of Wood and Lamping. Dan, thanks so much for
being with us today. And I know you want to
talk about a very loaded topic, and that's estate taxes.
Speaker 2 (00:23):
There's been a lot of talk this week about the
Trump tax bill. You know what's in it, what's included,
And any time Congress proposes any kind of tax change,
in my world, people always talk about the death tax
or the estate tax. So the estate tax is a
tax that is assessed on the total value of your
(00:44):
assets which transferred death to your heirs or beneficiaries you know,
including you know, your property, your financial accounts, everything in
your name. And as of twenty twenty five, the estate
tax only applies for a state's work more than thirteen
point ninety nine men million dollars per individual, or twenty
seven point nine to eight million for married couples who
(01:05):
elect what's called portability upon the death of the first spouse.
You see, you can leave an unlimited amount of property
and assets at death to your spouse without incurring estate taxes. However,
this means that that estate tax exemption I just mentioned
is more or less wasted to due to the death
of the first spouse, and portability permits the transfer of
(01:28):
that unused a state tax exemption to the surviving spouse,
which creates a twenty seven point nine eight million dollars
state tax exemption for that surviving spouse.
Speaker 3 (01:37):
Again, I'm dealing with a situation where related to portability
as we're speaking, and then and the thing that occurs
to me, I'm not an attorney, and thankfully we have
people like you to help us through these situations. But
portability in my brain used to be called an A
and B bypass trust. I know those are very different
things and are not as related as I'm pitching them
to be here, But can you can you kind of
weigh in on if I do nothing, I can simply
file an IRS form and I've and I've taken advantage
(01:59):
of both tax ex credit. How is that different from
the old A and B bypass approach.
Speaker 2 (02:03):
So yeah, there's in order to gain to gain portability,
you do have to file the state tax return and
elect portability upon the death of surviving spouse. The old
ab trust of more or less is directing the trustee
upon the first spouse's death to elect that before it's
(02:24):
to elect that portability. But it's very important to file
that a state tax return. There are time limits. You
don't want elect it. It can be wasted. Now with
a state taxes, the current is the current rate for
the state taxes can be as high as forty percent.
So as an example, even a state worth fifteen million,
(02:46):
only one point zero one million above that exemption is
going to be taxbule. However, this high exemption is currently
temporary unless Congress acts, it's set to sunset or expire
down to approximately seven million per person starting in twenty
twenty six, subjecting more estates to the estate tax. Under
(03:06):
the Biden administration, there was a discussion of reducing the
estate tax exemption to three and a half million, and
the new Trump tax bill proposal has discussion about raising
that exemption to fifteen million per person. Now, in addition
to estate taxes, certain states also have a state taxes. Luckily,
Ohio isn't one of them. Kentucky does have what's called
(03:29):
an inheritance tax. So unlike a state taxes where which
is going to be paid by the estate. Inheritance taxes
are going to be paid by the persons in inheriting
those assets. The Kentucky inheritance tax can reach as high
as sixteen percent. However, close family members such as spouse's children, grandchildren,
and siblings are exempt from that inheritance tax, but it's
(03:52):
important to watch out for inheritance taxes if you are
in a state where the inheritance tax would apply. There
are also a variety of ways to limit estate taxes,
and one of the most common ways is with lifetime gifting.
You can gift up to nineteen thousand dollars per person
annually without touching what's called your lifetime lifetime exemption from
(04:15):
the gift tax. You see, you can gift away thirteen
point ninety nine million dollars in taxable gifts during your lifetime,
and that would be a gift in excess of that
nineteen thousand dollars per year. But every taxable gift you
make reduces your lifetime exemption from the estate tax, so
you need to be careful. So, for example, a couple
(04:36):
could give thirty eight thousand dollars to each child or
grandchild nineteen thousand times too, without even making any taxable gifts.
Another ways by transferring assets to an irrevocable trust to
remove those assets from a person's taxable estate. And one
option is with what's called an irrevocable life insurance trust,
(04:57):
and that is a trust in which the death benefit
pays upon your death will be owned by the irrevocal
life insurance trust, what we call an islet, and this
can provide a cash fery benefit to your beneficiaries named
in the trust, but it can also be used to
provide liquidity for anticipated federal state taxes. So I've represented
many family family farms in the past, and an issue
(05:21):
that's common in that situation is that we have a
taxable estate, but there is very little liquid assets, and
the surviving family doesn't want to be put in a
situation that sell the family farm just to pay the
estate tax. And that's where an islet can be very
beneficial and provide that necessary liquidity to pay those anticipated
(05:42):
the state taxes. Another option is with charitable giving where
you can donate, where donating to charities is going to
reduce your state and reduce your taxable state as well
as offer some income tax deductions. Charitable trust can also
be used on common examples, what's called a charitable remainder trust,
(06:03):
and that's where you gift assets into a trust. You
get an income tax deduction to the year you make
the gift, You h an income stream comes back to
you for a set number of years, and at the
end st number of years, the balance of that trust
goes to the charity and that and that gift is
removed out of your taxable estates. And those are just
(06:23):
a few examples.
Speaker 1 (06:26):
All right, Dan, As we get through the second half
of twenty twenty five, here we could be just hours,
if not just days away from some kind of new
tax bill getting passed through Congress. What are you seeing?
I know you guys follow this stuff closely. What are
you seeing in terms of numbers for where that estate
tax exemption on the federal side, where do you think
(06:46):
that's ultimately going to settle out?
Speaker 2 (06:49):
So, as of right now, if Congress does nothing, which
is possible in twenty twenty six, we're gonna have a
seven million dollar state tax exemption per person ability will
still exist. So if family could pass fourteen million without
a state taxes, the Trump tax bill has have put
in a proposal of a fifteen million dollar exemption. At
(07:13):
what we're seeing right now is that there you know,
there's a lot of negotiation and discussion between both political
parties that and I would be surprised if we settle
on a fifteen million dollar exemption. What we're what we're
thinking is likely going to happen is somewhere between seven
million and fifteen million dollars is going to be the exemption.
Speaker 1 (07:33):
What's your best advice now for families how to plan
here during the second half of twenty twenty five based
on what we know and I guess just as importantly
what we don't know.
Speaker 2 (07:44):
So with the only guarantee right now is that the
federal exemption is going to be cut in hack going
to be cut in half as nothing happens. So twenty
twenty five is a critical year to engage in a
state tax planning portability. Again, Let's that surviving house use
the UNDEA, spouse's unused the state tax exemption. And you
(08:05):
know what we're thinking families should do is they may
want to lock in that current thirteen point nine to
nine million dollar exemption and get you know, essentially fourteen
million dollars out of their estate before this state tax
exemption expires. But with all this planning, you should also
be reviewing things annually because asset values can grow faster
(08:27):
than you expect and can push you over those exemption limits.
Speaker 1 (08:30):
All right, great stuff as always from Dan Perry, our
estate planning expert from the law firm of Wood and Lamping.
Thanks so much.
Speaker 2 (08:37):
Dan.
Speaker 1 (08:38):
You're listening to Simply Money, presented by all Worth Financial
on fifty five KRC, the talk station
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