It’s almost April 15th which means tax time is upon us, and you might be wondering how estate planning can affect individual taxation. The answer to that question will depend on your net worth, tax status and filing choices, as well as any long-term documents that you have in place, such as irrevocable trusts.
There are two main paths of taxation to consider: personal income tax and estate tax. At this point, any actions that you take in 2025 will only affect next year’s income tax return. Estate taxes are calculated the year that you pass away, which is why planning is essential to be prepared.
Here are a few common questions you might have as tax time approaches:
How can tax-free cash gifts be used as part of my estate plan?
Many individuals use current cash gifts to children or grandchildren as part of their estate planning strategy. Tax-free cash gifts are capped at $19,000 per recipient for the 2025 tax year, but there is no limit on the number of recipients. (If you give more than the cap amount, it reduces your estate tax exclusion.)
Cash gifts can be a great way to lower the amount of your taxable estate and offer your beneficiaries real-time resources tax free.
How does the lifetime estate tax exclusion work?
Estate tax is only levied if your total estate exceeds a certain amount when you die, with the top tax rate at 40%. For 2025, there is a $13.9 million exclusion for individuals, and twice that amount for couples. That exclusion amount is set to decrease significantly in 2026 unless Congress acts to extend it. So, if you have high value assets, it will pay to track these changes and consult with your estate planning attorney.
Can I deduct charitable gifts on my tax return?
If you itemize your deductions, you can deduct charitable gifts on your tax return, with a few limitations. You can only deduct up to 60% of your AGI (Adjusted Gross Income) for public charities. Some donors will ‘bunch’ their donations in a single tax year to make it worthwhile to elect itemizing over taking the standard deduction.
There are other more complex charitable giving strategies to employ as part of your estate plan, which can affect both income tax and estate tax. Please contact us to learn more.
Learn what you need to do next with one of our spring workshops
If you are ready to learn more about how to begin the estate planning review process, you can contact us for a consultation or attend one of our workshops to get more information. For a schedule of our upcoming workshops, please visit www.estateplanningworkshop.org or better yet, schedule a consultation today at (951) 414-3731.
