Could your estate be subject to taxes when you pass away? While many Americans don't have to worry about estate taxes due to the size of tax exemptions, this can change at any time. What should you know about the current laws regarding estate tax exemptions? Here are a few answers to your questions. 

What Is the Current Exemption?

The estate tax exemption is the amount of money your estate may be worth upon your passing without owing any federal estate tax. Up until 2017, this amount had grown each year by a small increase to account for rising costs. In 2017, it was $5,490,000. However, in 2018, tax reform was enacted that included a huge increase to $11,180,000. 

This is, of course, an exemption from federal tax. States may — and often do — impose their own estate taxes with their own limits and exclusion rules. 

What Isn't Included in the Exemption?

Keep in mind that the federal exemption amount doesn't refer to the total value of your estate. Certain items are not included when making calculations. For instance, people may transfer a generally unlimited amount to their spouses without any tax consequences. In addition, you may make charitable contributions from your estate before you calculate estate taxes. 

Finally, gifts made to individuals, charities, and organizations during your lifetime are also not included in these calculations. Some estate planners use annual and lifetime gift tax exclusions to limit their estates and maintain assets under the exemption amounts. 

How Might the Exemption Change?

Unfortunately, anyone doing estate planning in 2021 shouldn't count on the tax exemption forever. The law that boosted the exemption amount also stipulated that it will expire in 2025. This provision (known as sunsetting) means that if nothing changes, the exemption would revert to its old amount at that time. This could mean you would lose as much as half of your exemption. 

On the other hand, legislators have the option of revising these laws before 2025. They could opt to make the new levels permanent or change the date of this sunsetting. They could also choose to make a new exemption amount or different laws regarding exemptions in whole. Only time will tell. 

Where Can You Learn More?

Anyone whose estate may become taxable — either now or with growth over time — should stay abreast of tax exemptions and their changing rules. Doing so could mean the difference between a hefty tax bill and your heirs enjoying the full fruits of your labors. For more information about estate tax planning, meet with a tax planner who specializes in estate taxes in your state today.