How Would the Potential Estate Tax Exemption Change Affect Probate Matters?

Most people associate the probate process with the distribution of a decedent’s assets to heirs named in their will, or beneficiaries designated by intestacy laws when no valid will exists. However, before property can be transferred, debts and other obligations must be paid from estate funds. This includes taxes that are owed. Though South Carolina does not have any estate or inheritance tax, estates within the state face the risk of federal taxation if their value exceeds a certain amount. As of now, that amount is scheduled to decrease sharply at the end of 2025, so named executors and people planning their estates should be aware of the potential consequences. 

Under the Tax Cuts and Jobs Act of 2017, the estate tax exemption was temporarily doubled. Each year, the exemption is also adjusted for inflation, so an individual who dies in 2025 is allowed to pass on up to $13.99 million without facing federal estate taxes. However, unless Congress acts to extend the current exemption levels, the exemption will revert to the previous standard, meaning that the amount is expected to fall between $6 million and $7 million starting on January 1, 2026. 

One of the most immediate consequences of the exemption reduction is that more estates will become subject to federal estate taxes, which must be paid as part of the probate process. Currently, only a small percentage of estates exceed the exemption threshold, but after 2025, many individuals who were previously exempt may find themselves within the taxable range. This tax can run as high as 40 percent, which means a significant portion of an estate could go to the federal government rather than heirs named in the will.

There are ways to mitigate the impact of the reduced exemption is to take advantage of the current high limits before they expire. Individuals can make substantial tax-protected lifetime gifts to family members or trusts up to the current exemption amount. This remains in force even if the exemption drops in 2026.

Trusts remain an essential tool for estate planning, particularly for those who may be impacted by the lower exemption. Grantor retained annuity trusts (GRATs), irrevocable life insurance trusts (ILITs), and other estate planning vehicles can help manage tax exposure while preserving wealth for beneficiaries. Charitable giving strategies, such as charitable remainder trusts, may also provide tax benefits while supporting philanthropic goals. If you are being relied upon to serve as the executor of someone else’s estate, you might also be appointed as trustee if your they choose to distribute more of their assets through trusts. 

McManaway Law, LLC in Greenville advises Upstate clients on South Carolina probate and estate administration issues. For a consultation regarding your legal needs, please call 864-428-8912 or contact me online.