8 Tax Rules Around Inheritance That Are Changing in 2025

Building your wealth requires smart investing. But if you plan to pass assets on to heirs, you also need to understand how tax laws impact your legacy.

In 2025, several key changes to estate and inheritance taxes will take effect. These new laws will impact how much heirs can receive tax-free and how estates are taxed at both the federal and state levels.

Whether you're planning your own estate or expecting an inheritance, here's what you need to know about this year's changes.

As of 2025, the federal exemption amount for estate taxes will increase to $13.99 million per person. That is up from $13.61 million in 2024.

That means federal taxes will not apply to estates until they cross the $13.99 million threshold, which should allow individuals to pass on more wealth tax-free. Married couples can double the amount, meaning they can shield nearly $28 million from federal estate taxes.

However, this higher exemption is set to expire at the end of 2025 unless Congress acts to extend it. If the law sunsets as planned, the exemption could be significantly lower starting in 2026.

The annual gift tax exclusion will increase to $19,000 per donee in 2025, up from $18,000 in 2024.

This means individuals can give up to this amount to as many individuals as they like this year without it counting toward their lifetime estate tax exemption.

For married couples, the combined tax-free gift limit will be $38,000 per recipient. This change provides a great opportunity to transfer wealth gradually without triggering federal taxes​.

While 2025 brings an increase in the estate tax exemption, a bigger shift could happen in 2026.

The Tax Cuts and Job Act of 2017 significantly raised the federal estate tax ceiling. But the provisions of the act expire at the end of this year. At that point, the exemption amount could revert to pre-2017 levels.

If this rollback happens, estates above roughly $5 million per person could face federal estate taxes again, although it's likely the figure would be adjusted a bit higher for inflation.

It's worth noting that many observers expect Congress and President Donald Trump to work together to extend the tax cuts. If so, it's likely that the gift and estate tax exemption level would not fall as some now fear.

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In addition to federal estate taxes, some states levy an additional estate tax of their own. New York is one of those states.

In 2025, New York's estate tax exclusion is increasing to $7.16 million, up from $6.94 million in 2024. The estate tax itself ranges from 3.06% to 16% in New York.

Connecticut's estate tax is a flat 12%. The exemption amount for this tax mirrors that of the federal estate tax and will rise to $13.99 million in 2025, up from $13.61 million in 2024.

That means most estates in Connecticut will remain shielded from state-level estate taxes.

Maine will increase its estate tax exemption to $7 million in 2025, up from $6.8 million in 2024.

That means Maine residents will be able to pass on more of their money to heirs. Estate tax rates in Maine range from 8% to 12%.

Rhode Island's estate tax exemption will rise from $1.77 million in 2024 to $1.8 million in 2025, reflecting an inflation adjustment. Although this increase is small, it still allows more wealth to be passed on tax-free.

The estate tax in Rhode Island tops out at 16%.

Estate tax and inheritance tax are often confused, but they function differently. Estate tax is levied on the total net value of an estate before assets are distributed to heirs. This tax is paid by the estate itself.

Inheritance tax is imposed on beneficiaries after they receive assets, and is based on their relationship to the deceased.

As of this year, Iowa no longer has an inheritance tax. Previously, only immediate family members were exempt from inheritance taxes.

Changes to federal and state estate tax rules mean 2025 presents a valuable opportunity for strategic estate planning.

Are you prepared for these changes, and do they affect where you stand financially? Now might be the time to revisit your estate plan to ensure your wealth is protected for the next generation.