Significant Changes For 2025 That May Affect Your Estate Plan
Posted on Sun Feb 9, 2025, on Directed Trust
From Our “Ask a Question” Mailbag: “What are the significant changes for 2025 that may affect your Estate Plan?”
Revocable Living Trust Attorney Daniella Horn
Significant Changes For 2025 That May Affect Your Estate Plan.
Spring brings out both groundhogs and new laws and regulations. Federal and State lawmakers have been busy making small and significant changes to laws that touch on estate planning. This is a short synopsis of some of the key changes, not meant to be exhaustive. If you have follow-up questions about tax matters, I suggest you contact your CPA or my office if it affects your estate planning documents.
Grantor Trust Status Is Recognized in PA Beginning in 2025
Late to the game, Pennsylvania joins the vast majority of other states in recognizing irrevocable grantor trusts. This means that for 2025, a resident or non-resident trust getting income from Pennsylvania that is a Federal Grantor Trust is also a Grantor Trust for Pennsylvania tax purposes. This means, in short, that all trust income is taxable to the Grantor for both Federal and State tax purposes, even if the income is not distributed to a beneficiary.
If you have a Grantor Trust, it is time to contact your CPA and make adjustments. Your Pennsylvania income taxes will be rising, affecting your estimated tax payments. Likewise, trusts that were once making payments to Pennsylvania may now stop.
Directed Trusts
Last year, in 2024, Pennsylvania joined most other states in permitting directed trusts via statute. This gives Pennsylvanians the ability to draft Irrevocable Trusts with here-to-fore unattainable flexibility.
A Pennsylvania Trust may now include a “trust director” with the power to “direct” the trustee to take specific actions. This removes the trustee’s flexibility and responsibility. The trustee MUST follow these instructions. For example, the trust director could instruct the trustee to invest all the trust assets in a single stock or a closely held family stock, something a traditional trustee would be very hesitant to do as if this one-investment strategy should fail (the company goes under) the trustee could be liable to the beneficiaries for taking unnecessary investment risks. But, if the trustee was ordered to make this investment and had no flexibility, there is no liability.
The rules also allow the appointment of Trust Protectors who can give the director the power to modify a trust or, more traditionally, remove and replace trustees. In this way, we can build into the trust the ability to make changes in the future to address unforeseen circumstances and changes.
Congress has authorized adjustments that allow you to contribute more to your employer-provided qualified plans. To learn more details, call your plan provider or financial advisor. The broad summary of changes include:
- In 2025, you can contribute up to $23,500.00 to your 401(k).
- If you are aged 60-63, you can add $11,250.00 to your 401(k) as a Catch-Up Contribution. For those over 50, the limit increased to $7,500.00.
- For those who use SIMPLE Plans, the contribution caps rose to $16,500.00, including a special $5,250.00 catch-up for those aged 60-63.
Increases To the Gift and Estate Tax Exemptions
- Annual Gift Tax Exemption: Every person is allowed a yearly gift amount to any number of people, which does not reduce their gift tax exemption. This yearly gift, known as the Annual Gift Tax Exemption, adjusts annually for inflation. For 2025, the amount is $19,000.00. This means you can give each person on earth $19,000.00 and not report it to the IRS. You can also borrow your spouse’s $19,000.00 gift to that person if your spouse is not using it in 2025. This is a key element to almost every estate plan.
- Gift Tax Exemption: For gifts that do not fall under any exemption, every person is allowed to give away a certain amount in their lifetime free of Gift Tax. This “Gift Tax Exemption” is adjusted each year for inflation. For 2025, your Gift Tax Exemption is $13.99 million. If you are married, you BOTH have $13.99M, so you can give away about $28 million without tax as a team.
In Conclusion, Significant Changes For 2025 That May Affect Your Estate Plan.
I hope you found this short article about the Significant Changes For 2025 That May Affect Your Estate Plan. Contact us if you want to know more or have an estate that needs our help. Let our Probate and Estate Planning lawyers help walk you through what can be a confusing process. Feel free to contact our office for a free consultation. It’s All We Do:
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It’s What We Do!
Peter Klenk, Esq. Pennsylvania Probate Lawyer, New Jersey Probate Attorney
