The $15 Million Estate Tax Threshold: A Strategic Window to Lock in Wealth for Generations

The federal estate tax exemption is poised for a dramatic shift in 2025, creating both opportunities and risks for high-net-worth individuals. With the current threshold at $13.99 million per individual and set to plummet to around $7 million in 2026 unless Congress acts, the proposed $15 million exemption—indexed for inflation—has become a focal point for wealth preservation strategies.

. This article explores how irrevocable trusts and state-specific planning can help families capitalize on the current window, while mitigating the risks of legislative uncertainty.

The Federal Exemption Crossroads: Act Now or Regret Later

The Senate has already passed a bill to permanently raise the federal estate tax exemption to $15 million (adjusted for inflation), but its fate hinges on House passage and the President's signature. Even if the bill stalls, the 2025 exemption remains at a historically high $13.99 million—double the projected 2026 level. This creates a critical “use it or lose it” scenario: estates valued above $15 million may want to lock in the higher threshold by transferring assets before year-end. For example, an estate worth $20 million would face $2 million in taxes under the proposed exemption but nearly $5.2 million under the 2026 reversion.

The data underscores the volatility of federal policy. The 2017 Tax Cuts and Jobs Act (TCJA) doubled exemptions, but its “sunset” clause has now brought us to a cliff edge. For planners, this is a call to act decisively.

Irrevocable Trusts: The Cornerstone of Tax-Efficient Wealth Transfer

Irrevocable trusts (e.g., Spousal Lifetime Access Trusts, or SLATs) are critical tools for capitalizing on the current exemption. These trusts allow individuals to transfer assets out of their taxable estate while maintaining control over distributions. Key advantages include:

1. Freezing Asset Growth: Appreciation on trust assets is shielded from estate taxes.
2. Creditor Protection: Trust assets are insulated from future liabilities.
3. State Tax Arbitrage: Trusts can be domiciled in states without estate taxes (e.g., South Dakota) even if the grantor resides elsewhere.

Consider a married couple with a $25 million estate. By funding a SLAT with $13.99 million, they effectively remove that sum—and its future growth—from their taxable estate. If the $15 million exemption is enacted, they could transfer an additional $1.01 million in 2025 to fully exploit the threshold. This strategy becomes even more compelling given that trust returns are shielded from capital gains taxes.

State Tax Strategies: Navigating a Patchwork of Rules

While federal changes dominate headlines, state-level exemptions and rules can dramatically alter outcomes. For example:

• Washington State: Its exemption rises to $3 million in July 2025, but its top rate jumps to 35% by 2026. Families here might accelerate asset transfers to take advantage of the higher exemption before it rises further.
• New York: The “tax cliff” at $7.5 million means even minor overages trigger full taxation. High-net-worth residents might use life insurance trusts to offset potential liabilities.
• Connecticut: Matches the federal exemption but imposes a gift tax. Married couples can use QTIP trusts to bypass state-level penalties.

This comparison reveals stark regional disparities. In states like Oregon ($1 million exemption) or New Jersey (inheritance tax by beneficiary), trust-based strategies are essential to avoid punitive levies.

The “Annual Gift” Play: A Stealthy Way to Reduce Taxable Wealth

The federal annual gift exclusion of $19,000 per recipient allows individuals to transfer wealth incrementally without triggering taxes. For a family of four, this means removing up to $76,000 annually from the taxable estate—a strategy that compounds over time. While small relative to $15 million, these gifts can add up and reduce the urgency of large transfers.

The Investment Case for Proactive Planning

The urgency here is clear: even if the $15 million exemption bill passes, the current high threshold is a temporary gift. If it fails, the 2026 drop will force more drastic measures. Advisors are now recommending a three-pronged approach:

1. Maximize the 2025 Exemption: Use irrevocable trusts to transfer assets before the year-end, assuming the $15 million threshold is locked in.
2. State Tax Optimization: Structure trusts in low-tax states (e.g., Delaware) and leverage state-specific exclusions (e.g., Washington's family residence carve-out).
3. Monitor Legislation: Keep a close eye on Congress. If the bill stalls, families may need to accelerate gifting or explore alternative strategies like charitable remainder trusts.

Conclusion: The Cost of Inaction

The stakes are high. A family with a $20 million estate that fails to act could lose millions to taxes. Meanwhile, proactive planning could leave heirs with nearly the full amount. The tools are clear: trusts, state-specific strategies, and aggressive use of exemptions. As we approach the 2025 deadline, the message is simple—act now, or risk losing the gains.