The Rising (and Potentially Lowering) Estate Tax Exemption
If I told you that having millions of dollars could cause problems, would you believe me? When it comes to estate tax, the old saying proves true: more money, more problems.
The estate tax—often referred to as the “death tax”—is a federal tax imposed on the value of a person’s estate at death. It reduces the amount ultimately passed on to beneficiaries. Some states also impose their own estate or inheritance taxes, but Texas is not one of them. As a result, most Texans only need to worry about the federal estate tax. There are exceptions, of course. For instance, if a Texas resident owns property in a state like New York, which has its own estate tax, that state may still impose a tax on the value of that property.
The federal estate tax has a long history, with early versions dating back to 1797. The current structure stems from the Revenue Act of 1916. In 2023, the estate tax generated approximately $34 billion in revenue—less than 1% of all projected federal revenue. This figure would be significantly higher were it not for one key feature of the estate tax system: the estate tax exemption.
The exemption is the amount an individual can pass on at death without triggering federal estate tax. Only the portion of an estate exceeding that exemption is subject to taxation.
Historically, the exemption has varied greatly. In 1997, it was just $600,000. It increased
incrementally in the early 2000s:
- $1 million in 2002–2003
- $1.5 million in 2004–2005
- $2 million in 2006–2008
- $3.5 million in 2009
Then came 2010, a unique year in estate tax history. The federal estate tax was temporarily repealed that year, but it was reinstated in December 2010 by the Tax Relief Act of 2010. That law temporarily set the exemption at $5 million until December 31, 2012, when it was scheduled to sunset—reverting back to $1 million—unless Congress intervened.
In true Congressional fashion, lawmakers acted at the last minute. On January 1, 2013, they passed the American Taxpayer Relief Act of 2012, which made the $5 million exemption permanent (indexed for inflation).
That amount held until the Tax Cuts and Jobs Act of 2017, which significantly increased the exemption. Beginning in 2018, the exemption nearly doubled to $11.18 million, and it has continued to rise with inflation. For 2025, the exemption stands at $13.99 million per individual, or $27.98 million for a married couple.
So, should only those with estates approaching $14 million or $28 million be concerned? Unfortunately, it’s not that simple.
The current exemption amounts are scheduled to sunset at the end of 2025. Unless Congress acts, the exemption will revert to $5 million (indexed for inflation) on January 1, 2026. Most projections estimate the inflation-adjusted exemption will be around $7 million.
However, there is a potential development on the horizon. On May 22, 2025, the U.S. House of Representatives passed the One Big Beautiful Bill Act, which proposes to permanently increase the federal estate and gift tax exemption to $15 million per individual (or $30 million for married couples), starting in 2026, with adjustments for inflation thereafter. The bill is now under consideration in the Senate.
Taxpayers have two choices:
- Wait and hope—relying on Congress to extend the higher exemption, as it did in 2012.
- Act now—taking advantage of advanced estate planning strategies to preserve more wealth before the exemption potentially drops.
We can’t predict what Congress will do, and we certainly can’t predict the future. But we can help you plan for it.
At Sprouse, our experienced estate planning attorneys can help you make the most of the current exemption and prepare for whatever changes may come. Let us help you prepare for the worst and hope for the best.
