The landscape of federal estate and gift taxes is poised for a significant change that could have major implications for individuals with substantial estates. The federal estate and gift tax exemption provision, a cornerstone of estate planning, is set to sunset after 2025 to its pre 2018 amount adjusted for inflation.
The federal estate and gift tax exemption serves as a critical aspect of estate planning, determining the threshold at which an individual’s estate becomes subject to federal taxation.
The 2017 Tax Cuts and Jobs Act (TCJA) almost doubled the estate and gift tax exemption for individuals, raising it from $5.6 million to $11.18 million, with adjustments for inflation starting in 2018. By 2023, the indexed exemption reached $12.92 million ($25.84 million for couples). This high exemption level has offered substantial relief to many taxpayers in recent years.
However, if no action is taken by Congress, it’s anticipated that the inflation-adjusted exemption will revert to around $7 million ($14 million for couples) by 2026, effectively halving the limit. This will make a larger portion of your wealth subject to the 40% estate tax rate.
The potential reduction in the federal estate and gift tax exemption could have several significant impacts on estate planning:
Considering these upcoming changes, individuals and families with substantial wealth should reassess their estate planning. If you anticipate having a taxable estate after 2025, take action now and avoid waiting until the deadline approaches. Contact us today so we can help you strategize.